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Weekly Sentiment Report: Horrific? Hardly!

thetechnicaltake's picture




 

Introduction

If you read the financial press, the market slide that has occurred over the past 3 weeks has been described as "huge", "horrific" and a "saga". Really? I am sure those who were buying the "Kool-aid" at the market highs feel that way, but the numbers tell a different story.

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From the closing high 5 weeks ago to Friday's close, the S&P Depository Receipts (symbol: SPY) have lost 3.6%. Huge? Horrific? Hardly!! The PowerShares QQQ Trust Series (symbol: QQQ) is down 7.1% from its closing high, and the i-Shares Russell 2000 (symbol: IWM) is down 7.7%. Even if you were dumb enough to buy at the highs, these losses are nominal, and prices in all 3 issues remain above their much watched 200 day moving averages. I am sure this line on a graph -i.e., the 200 day moving average -- is good for a bounce of some kind. So calm down everybody.

Yet, as we have been saying for months, lower prices should be desirable if you are an equity bull unless you are over leveraged and out of buying power as appears to be the case at most market tops when investors are caught by surprise. Judging by the whining and complaining and the utter surprise that the equity market doesn't always go higher, investors must have been buying with leverage. In any case, lower prices are just a healthy part of any bull market -- except this one. Lower prices are the "pause that refreshes", but over the past several years, market sell offs have been very limited as investors have anticipated that the Federal Reserve will come to the rescue with some sort of asset purchase program (real or perceived) to support the markets. But this time appears to be different. Or is it?

Getting back to our pundits and in this case the serial bear callers --i.e., those market watchers always calling for doomsday -- we note their voices are getting a little bit louder. Comparisons to 1987 and 2000 seem to be a big new item. I am not sure this little mini-market swoon can be extrapolated into a market crash, yet continued market losses (and we should hope for continued losses) will only make the level of angst even greater. Somewhere in here (probably over the next 3 to 4 weeks), investors will turn extremely bearish on equities (i.e., they have thrown in the towel), and this will be our buying opportunity. Most likely, this buying opportunity will coincide with the Federal Reserve saying that they are going to alter the trajectory of the QE un-wind or some such nonsense to support a struggling economy. (Note: the Fed never says it is supporting asset prices although we all know that this is what they are doing.) The markets will bounce. From a technical perspective, this will create a level of support or buying. However, if that level should fail, then the bull market is likely over, and figuratively speaking, markets participants will no longer have belief in the magical powers of the Federal Reserve. The markets will fail when the Federal Reserve fails. This is what will herald in the next bear market.

So this time isn't really different, and it never is. Investor sentiment (as seen by our "Dumb Money" indicator, figure 2 below) is neutral. These investors need to turn extremely bearish to create our next buying opportunity, and the best way to get there is to have lower prices. Anything short of this will produce a noisey, range bound market. If that buying opportunity does present itself, then it will be the success or failure of that bounce that will be the important market tell. The bull market ain't over yet. There are many reasons (i.e., valuations and length of time) why this cycle should end, but I suspect we need to kill the notion that the Federal Reserve has removed all risk from the equity markets. The only way for this to happen is to have the markets fail after the Fed blinks and comes to the rescue.

 

The Sentimeter

Figure 1 is our composite sentiment indicator. This is the data behind the “Sentimeter". This is our most comprehensive equity market sentiment indicator, and it is constructed from 10 different variables that assess investor sentiment and behavior. It utilizes opinion data (i.e., Investors Intelligence) as well as asset data and money flows (i.e., Rydex and insider buying). The indicator goes back to 2004. (Editor’s note: Subscribers to the TacticalBeta Gold Service have this data available for download.) This composite sentiment indicator moved to its most extreme position 10 weeks ago, and prior extremes since the 2009 are noted with the pink vertical bars. The March, 2010, February, 2011, and February, 2012 signals were spot on — warning of a market top. The November, 2010 and December, 2012 signals were failures in the sense that prices continued significantly higher. The current reading is neutral.

Figure 1. The Sentimeter

fig1.4.13.14

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Dumb Money/ Smart Money

 The “Dumb Money” indicator (see figure 2) looks for extremes in the data from 4 different groups of investors who historically have been wrong on the market: 1) Investors Intelligence; 2) MarketVane; 3) American Association of Individual Investors; and 4) the put call ratio. The indicator shows that investors are NEUTRAL.

Figure 2. The "Dumb Money"

fig2.4.13.14

Figure 3 is a weekly chart of the SP500 with the InsiderScore “entire market” value in the lower panel. From the InsiderScore weekly report: “ Market-wide insider sentiment is Neutral as insider transaction volume is seasonally low. Trading volume will remain very low over the next few weeks as the closure of company-specific trading windows limits insiders' abilities to transact non-10b5-1 trades and adopt new 10b5-1 plans. Volume will rise in late April/early May as companies begin reporting Q1'14 results."

Figure 3. InsiderScore “Entire Market” value/ weekly

fig3.4.13.14

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Mon, 04/14/2014 - 12:19 | 4657207 Jack4952
Jack4952's picture

As my favorite author Mark Twain (Samuel Clemens) wrote: "

"Whenever you find yourself on the side of the majority, it is time to pause and reflect."

Mon, 04/14/2014 - 11:22 | 4656937 moneybots
moneybots's picture

"Getting back to our pundits and in this case the serial bear callers --i.e., those market watchers always calling for doomsday -- we note their voices are getting a little bit louder. Comparisons to 1987 and 2000 seem to be a big new item. I am not sure this little mini-market swoon can be extrapolated into a market crash"

 

In 1987 and 2000, there was no anticipation of a record one day drop and a 76% crash in the Nasdaq. 

In fact, most assume such can't happen because the FED is supposed to have everyone's back.  But the FED was pumping in 1986.  It had no bearing on 1987, when conditions had changed.

The FED is leveraged to over 50 to 1.  What the FED is doing is causing damage.  With a poor real employment picture, the FED has no reason to taper unless it is causing damage and is forced to stop what is is doing.

The FED is not going to admit to that being the case, if that is so.  The open mouth committee will continue to try to fool the market for as long as it will work.

 

Mon, 04/14/2014 - 10:51 | 4656780 moneybots
moneybots's picture

" Lower prices are the "pause that refreshes", but over the past several years, market sell offs have been very limited as investors have anticipated that the Federal Reserve will come to the rescue with some sort of asset purchase program"

 

It hasn't been anticipation, it has been in response to those programs.  As each program ended, the market dropped.

In anticipation to stopping or reversing the taper, the market should be up this year, not down.  People should be buying with both fists if the FED is going to do more QE.

But that is not what is happening.

Mon, 04/14/2014 - 09:52 | 4656568 Orwell was right
Orwell was right's picture

This is a 'shill' article pure and simple...nothing more than a teaser to try and get the reader to take the "FREE" product and then buy something.   (I guess the Tyler's have to pay the bills somehow)...

Mon, 04/14/2014 - 09:49 | 4656556 BeetleBailey
BeetleBailey's picture

I kept looking for "Mediocre Money" - not to be found.

Mon, 04/14/2014 - 09:03 | 4656419 Iam_Silverman
Iam_Silverman's picture

"unless you are over leveraged and out of buying power as appears to be the case at most market tops"

So, to use an airplane as an analogy:

Things are fine as long as the smoke in the cabin is not from a fire?

With the average retail "investor" sitting on the sidelines, I guess that the "smoke" in the airplane must be from a raging fire in the baggage hold?

Mon, 04/14/2014 - 08:13 | 4656271 new game
new game's picture

so s and p 200 dma is 1780? ok i'm watching.

Mon, 04/14/2014 - 08:09 | 4656265 mvsjcl
mvsjcl's picture

Who the fuck reads this shit?

Mon, 04/14/2014 - 09:29 | 4656486 Jay Bird
Jay Bird's picture

All of us just did.

Mon, 04/14/2014 - 07:44 | 4656228 whidbey-2
whidbey-2's picture

How hard up can ZH get?? Overlooked data that says things are contrary your prior chirps???.

How stupid can we get that we read this crap? ZH Always an insider, with no judgement?

Hire an editor for the editor and see if you can go on. We can pretend it did not happen.

No, I have it, we will just Go away,  

Mon, 04/14/2014 - 07:10 | 4656173 Himins
Himins's picture

If at first you don't succeed well, so much for skydiving.

Mon, 04/14/2014 - 06:59 | 4656165 AdvancingTime
AdvancingTime's picture

Over the years we have witnessed the type of market reversal the big banks supported by the Fed can generate with a concerted effort to buy S&P 500 index futures at crucial support points late in the day. This has proved more than enough to turn the markets from red to green in the blink of an eye.

This is a reason for caution!  If it looks like a Ponzi scheme, sounds like a Ponzi scheme, and feels like a Ponzi scheme, then it is probably a Ponzi scheme, but that does not guarantee that it is over. More about this subject in the article below.

http://brucewilds.blogspot.com/2014/04/bears-have-little-reason-for-confidence.html

Mon, 04/14/2014 - 10:58 | 4656811 moneybots
moneybots's picture

"Over the years we have witnessed the type of market reversal the big banks supported by the Fed can generate with a concerted effort to buy S&P 500 index futures at crucial support points late in the day."

 

That being the case, the S&P shouldn't have dumped 57% into March 2009. 

 

In fact, why was the FED pullling in the slosh around the time of the TARP debate?  A financial crisis is not the time to withdraw liquidity.

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