Sentiment: Another Concern For Stocks
The exception to the sentiment rule can come at the early stages of a strong trend; so the data below should be reviewed in that light. However, sentiment appears to be aligning in a bearish fashion with other technical indicators. The text below was written by the man who literally wrote the book on technical analysis - Robert W. Colby, author of The Encyclopedia of Technical Market Indicators (www.RobertWColby.com).
The latest Commitment of Traders (COT) report shows that the Commercials (giant corporations with deep pockets) have been buying “risk off” defensive futures contracts, specifically, the U.S. dollar and the ten-year Treasury note. On the other side, trend-following Speculators have been buying “risk on” aggressively bullish contracts, setting a new all-time net-long record in the Nasdaq futures. The unusually large size of Speculators’ positions implies a weak-handed, top-heavy stock market.
AAII Sentiment: There were 43% Bulls and 27% Bears, according to the AAII weekly survey reported on 2/16/12. Net bullish opinion is as high as it was last July, near the market top.
Investors Intelligence Sentiment: There were 54.8% Bulls versus 25.8% Bears, according to the Investors Intelligence weekly survey of stock market newsletter advisors reported on 2/15/11. This is the highest level of bullish sentiment since the stock market top in May, 2011.
Investment Newsletters are 75% bullish, the highest since near the major top in year 2000, according to Hulbert Digest.
Market Vane’s Bullish Consensus among Advisors and Newsletters rose to 66% Bulls this month, in the same 64% to 69% range of Bulls from February to July 2011 at the highs.
Short Selling ETFs are trading the lowest volume since the market top in April, 2011, according to Frank D. Gretz of Wellington Shields & Co.
Corporate insiders have been selling their companies’ stock at the heaviest rate since the market peak last July, according to Mark Hulbert at MarketWatch. Insiders sold 577 shares for each 100 shares they bought, according to Argus Research Vickers Weekly Insider Report. That is a big change in insider behavior from 81 shares sold for each 100 shares bought in November. Since corporate insiders (officers, directors, and largest shareholders) know so much more about their companies than the public can possibly know, it is bearish when insiders sell at such a heavy pace.
NYSE short interest collapsed from a high peak of 16.1 billion shares sold short last September, which coincided with the stock market lows, to 12.5 billion shares sold short in February. This is the lowest level since last April, at the market top. Short interest represents a pool of potential demand for stocks, since short sellers eventually must buy back the shares they borrowed. Currently, that pool of demand is depleted.
VIX Fear Index broke down below the lows of the previous 6 months on 2/3/12, hitting 16.10 intraday. That was down from a peak of 48.00 on 8/8/11. Such a large drop in VIX indicated a shift away from fear and toward bullish complacency, which may be bearish. VIX is a market estimate of expected constant 30-day volatility, calculated by weighting S&P 500 Index CBOE option bid/ask quotes spanning a wide range of strike prices for the two nearest expiration dates.
