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| Today's Commentary (Short Term Outlook) |
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Investors mixed on
sentiment Stocks recovered from early losses and closed in positive territory. The Dow gained just 9-points, but had been down over 100 at one point in the morning. The TSP funds were mixed again. The C-fund added 0.23%, the S-fund rallied 1.07%, and the I-fund fell 1.46%. The F-fund fell 0.15%. The S&P 500 recovered nicely as well and continues to ride near overhead resistance.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk The market is on the overbought side, but not at an extreme, although it is near the top of a descending channel.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk I want to talk about sentiment again as we are seeing very inconsistent results from the various surveys. Yesterday we talked about the Investors Intelligence Survey where that "dumb money" indicated that investors are very bullish as the bulls to bears ratio came in at 3.06 to 1. Today we will look at the "smart money" of the Wall Street Sentiment Survey. This survey was taken late last week - I believe after the close on Friday (which was a very negative day) but I'm not 100% certain about that. Anyway, the results were not typical as there were 0% bulls! Yes, zero! And the bears came in at 76%.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk This should get our attention as when not one of the smart money investors are bullish, you'd think this would be bearish for stocks since this is not usually a contrarian indicator like the dumb money surveys. Actually we saw a 0% bulls reading in 2006, and as you can see below, that was not exactly a time to be a seller.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk The blue arrows show other 75% bearish readings and while a 76% bearish reading is a very extreme reading, the two in 2009 did not really produce any downside action, at least for any length of time. As you may notice in the charts, the smart money is much more volatile about their sentiment. Unlike many other surveys, they could be very bullish one week, and very bearish the next. Our Sentiment Survey can also be a little volatile, and this week is one of those times. Last week we saw a bulls to bears ratio over 2.0 to 1, which gave the system a sell signal. Well, guess what? We got a new buy signal this week as the bulls to bears ratio came in at 1.18 to 1.  Anything 1.25 or lower is a buy signal for our system. This is amazing. According to this, the rally now has more ammunition to move higher. That is unless you trust the smart money, who are very bearish, or the Investors Intelligence survey, who are very bullish. By the way, the AAII survey that we usually talk about, came in at 1.12 to 1 this week, which is neutral, but would be a buy signal under our rules (1.25 or lower). So let's recap: - The Wall Street Survey (smart money) is extremely bearish - at least they were last Friday - and that is generally a bearish sign for stocks. Non-contrarian indicator. - The AAII Survey (dumb money) came in at 1.12 to 1, which is leaning close to the overly bearish side and thus is generally bullish for stocks. Contrarian indicator. - The Investor's Intelligence Survey (dumb money) is overly bullish (3.06 to 1) which is generally a bearish sign for stocks. Contrarian indicator. - The TSP Talk Survey (yes, we're the dumb money) came in at 1.18 to 1, which is overly bearish and generally bullish for stocks going forward. Contrarian indicator. Thanks for reading. Have a great weekend Tom Crowley |