Institutional Sentiment & Analysis Weekly 4/21/08
Published Sunday 4/21/2008
By Mark Young of Equity Guardian Group

Short-Term Sentiment: Mixed to Bullish.

Overall Intermediate-Term Sentiment: Bullish.

Individual Investor Sentiment: Neutral.

Small Speculator Sentiment: Bullish.

Small Hedge Fund/Manager Sentiment: Bullish.

Longer-term Trend: Bear.

Intermediate-term Trend: Bullish.

Short-term (one-day) Signal: None. We look both ways.
We are trading these signals and others intra-day for our Premium subscribers--contact us for details.

Ideal ETF Portfolio (tracking portfolio):

50% long DIA at 127.54.
50% long UWM at 50.61

We're about fully long.  I'm going to lighten up this week, too.

Introduction
The late volume tell was again Bullish. Over the weekend, however, it's always tough. Looking at the message board polls, I smell more strength still. We're overdone but too many are playing for the pullback. Time for some Bear frustration.

Results of the Wall Street Sentiment Survey (formerly known as the Fearless Forecaster Sentiment) taken after the close on 4/18/08

Response was to this question: "At the end of next week will the S & P 500 close up (bull), down (bear), or unchanged/no opinion (neutral)?"

Weekly BULLS:  33%
Weekly BEARS: 40%

Our `Smart Money' Pollees were 0% Bullish and 100% Bearish.

Our Amateur Trader Pollees were 0% Bullish and 50% Bearish.

The Senticator is Neutral.

Last week, our call was for a gap down on Monday, and if it was on low volume, it would likely be a very good place to buy a turn for a two week rally, and maybe a big one. My call was officially for a down draft on Monday, a sharp reversal and rally into Wednesday, and then chop into Friday. We were dead on right until Friday. Still, we got the shape of the action and we also offered tradable advice on it. I think we can take an A- for that call.  Remember, these predictions are for demonstration purposes and are not a substitute for trading discipline.

 

For a direct link to this chart, try this link: http://www.wallstreetsentiment.com/isa/080421-1.gif
 
The Mechanical Senticator model went long at 133.19 and the Subjective Senticator Model took a 1/2 position there too. We nearly doubled up at 132.07, but we sold all at 136.25. A nice profit, but a missed opportunity. Note that the Senticator Models are based upon only one indicator and do not reflect our overall opinion. If the Senticator is Bearish or Bullish, the Mechanical model HAS to go short or long.

Proprietary Surveys
This week, the WSS Surveyees are leaning a bit Bearish, on lower participation. The "Smart Money" guys are leaning Bearish, and the "Amateur" pollees are leaning Bearish too. The Senticator is Neutral. With the Amateurs being a bit Beared up and the often early "Smart Money" folks Bearish, I think we may yet be a bit from a top. Basically the surveys are Bullish, but they don't preclude weakness at some point this week.

Message Board Sentiment
The message board sentiment poll shows Bulls at 20% and Bears at 57%. This would be Bearish, since this crew tends to be right more often than not, at least for a bit. The problem is that 57% is excessive. Participation was below average. The Actual Position Poll has 17% fully long and 9% partially long. 29% are partially short and 26% are fully short. This is back above my 20% threshold, which is Bullish. Even better, we have a large number of partially short Bears picking a top. They will almost assuredly drive the market higher to shake them loose. The Fully Long/Fully Short 5-day is at 164%, which is neutral and falling again. Basically the data is still supportive. The Weekly Fearless Forecaster poll shows 83.78% Bears. That's a warning sign that a pullback might not come immediately, or it might not last long enough to profit from it.



Check out www.traders-talk.com for early updates of the sentiment polls every day.

Our T-4 Turn Indicator went out at 62 which is away from a signal.  Typically we want to see readings above 80 or higher before we look for worthwhile turns. This indicator doesn't catch every top and bottom, but it is a great "Heads up!" indicator.


Options Sentiment
Daily P/C ratio: 0.82. Sell.
10-day P/C ratio: 1.03. Neutral.
Equity P/C ratio: 0.59. Sell.  
OEX PC ratio: 1.18. Neutral.
OEX 10-day PC ratio: 1.17. Neutral.
OEX $-weighted* P/C ratio: 0.42. Sell.
QQQQ $-weighted* P/C ratio: 0.86. Neutral.
ISEE Sentiment Index: 119. Neutral.
Relative VIX: Neutral.

The nominal options data are showing some excessive Bullishness, but not a ton. The OEX $-weighted P/Cis too. With Op-Ex, this data is less than useful, really. Market Harmonics' Options Buyers Sentiment Gauge (thank you, Tony Carrion http://www.market-harmonics.com) has about achieved the level that marked the 2003 low and has turned up. Overall, this is constructive.


The ISEE Sentiment Index indicator is contrarian; traditionally, over 200 is too optimistic, under 100 is too pessimistic. *$-weighted P/C data courtesy of Fari Hamzei of www.hamzeianalytics.com . Readings over 2.0 are Bullish and near 0.5 are Bearish. OBSG provided by Tony Carrion of Market Harmonics.


General Public Polls

TheStreet.com is showing 56% Bulls and 23% Bears. That's a big jump in Bullishness and we have to view that as at least mildly Bearish.

TSPTalk's weekly poll showed 49% are Bullish and 39% are Bearish. That's showing rising Bullishness and falling Bearishness. The TSPTalk system views that as a Buy but I'd say it's just neutral. The poll was completed before the open on Friday.

Last week, AAII reported 30.37% Bulls and 48.69% Bears vs. 45.76% Bulls and 37.29% Bears last. That's a big jump in Bearishness and a really big drop in Bullishness. This is quite Bullish. This shows how quickly folks will get Beared up--They are believing that the news is driving the market. That supports a longer-term rally. Remember that we have been in Buy territory for 21 of the last 24 weeks.

Investors Intelligence reported that Bulls rose to 37.8%, and Bears rose to 38.9% vs 37.4%, and 38.5%. That's showing stubborn Bearishness and still Bullish. The "smart guys" are pretty clearly fighting the last war.

Mark Hulbert's HSNSI fell a bit to 27.5%, largely unaffected by Friday's action, but Nasdaq advisors also went back to net short at -3.6% long. This may not be enough to turn the market, but then again, advisors may not have had time to have their opinions fully reflected in Hulberts survey.

Lazlo Birinyi reported that Bulls were at 30% and Bears were at 40% in his poll on better participation. This is a pretty significant Bearish shift and it suggests that this crew is quick to shift back Bearish.  I think that's Bullish. To see a historical chart, try this link  http://tinyurl.com/4r3evh

Rydex Sentiment
Our Rydex data showed the non-Dynamic Bull funds lost $1MM and the Bear funds lost $1MM. The Dynamic Bull funds took in $11MM while Bear funds took in $67MM. Basically, somebody is betting short in the Dynamics, but not much conviction anywhere else.


Conclusion
Friday, I warned of a possible "delta hedge" spike higher if the OEX guys are too short the calls. You can see what they do when folks get leaning too hard. Ihad said that there was a good chance that they were going to badly bag the poor gamesmen who thought selling calls was a good idea on the first spike up. That was the motive. Given the outlandish and persistent Bearishness, there was a good chance that there were a lot of amateurs short, too and probably too short, which makes it easier to force them to cover. Given the months of money flowing to the sidelines, making almost nothing, there was (and still is) a ton of fuel for a rally. And then we have the Fed which has made sure that we don't have to worry about waking up to a really, really bad counter-party failure. Add to that the head fake of the parade of headlines which fooled folks into thinking that fundamentals were driving the market and it was the perfect set up for a Friday squeeze.

Last week, I said that the Amateurs weren't likely to be right and that the folks who are paying up for put options are likely to be punished, and we still had a strong Fully Long/Fully Short ratio buy hanging over this market too. I was thinking we could buy a turn an boy could we. The rally was massive. The scary thing is that I expected to see rising Bullishness this week. I'm not seeing the Bullishness that I expected. Sure, we've got some call buyers and sure we've got some Bulls in TheStreet.com's poll, and on TSPtalk, but the message boards have an absolute TON of Bears and many are weak handed. I'm pretty sure that we're going to have to shake the early Bears (top pickers) loose before we get a pullback. That said, I'm thinking Thursday ought to begin the selling. Remember, when we get a MACD crossover it's usually a fade after a bit. On the daily, 4 days usually nails it. On the weekly, it usually takes a week or so. I think that the way to play this is to lighten up on strength, and perhaps write some covered calls. I'm not a Bear, but we are going to get a pullback once we shake the top pickers loose.



The Mechanical Senticator and the Subjective Senticator Models will sit flat. Remember, these models must trade in the direction of the Senticator or not at all.

We do not have a ST Sentiment signal. The late volume tell was Bearish. We took a dandy 10 point profit last week on the long side. Since we've been publishing our ST Sentiment Signals, we've had 87 trades and 60 winners. We're much more active now and I'm offering more set ups when I'm not going to be around. If you'd like a trial, feel free to contact us.

Ideal ETF Portfolio (tracking portfolio):

50% long DIA at 127.54.
50% long UWM at 50.61

I'm about fully long. I'm going to lighten up this week, too.

Past performance is no guarantee of future returns. All information included in this missive is derived from sources we believe to be reliable, but no guarantee can be made to that effect. None of the forgoing should be construed as an offer or solicitation to buy or sell any security. The publisher may have a long or short position in the funds or securities discussed at any given time. We aren't your advisor, unless you have a signed contract with us. Please review any trade that you do with your trusted advisor FIRST.

If you'd like to receive the Institutional Sentiment & Analysis Daily Trade Navigator, you'll need to make sure to order at this link (please indicate your subscriber status in the "notes"). http://www.wallstreetsentiment.com/order.html

If you are a KTT or Institutional subscriber, your ISA Navigator and Premium upgrade subscription is included.

For more on using the ISA and the various sentiment poll data, click here: http://www.wallstreetsentiment.com/d/i.html

Mark Young
Editor, The ISA Daily Trade Navigator & The ISA Weekend Report

ABOUT INSTITUTIONAL SENTIMENT AND ANALYSIS

The Wall Street Sentiment Survey is taken each Friday from a generally static pool of experienced technical analysts (both private and professional). The Wall Street Sentiment Surveyees are not normally a good fade, though there are times when they can be.

The Wall Street Sentiment Survey data are useful on the short term; they tend to be right. Typically they are right sooner rather than later, if there's a large plurality. On the flip side of the equation, if 90% or more are Bullish or Bearish, the odds of them being right over the very short term are huge, but the odds of a major turn (in the opposite direction) soon thereafter are also quite good.

We have also found that when the Wall Street Sentiment Surveyees are evenly split, look for a BIG move in either direction, but usually down.

Over the years, we have found a number of other tools to help in evaluating the Wall Street Sentiment Survey. We publish this in our weekly "Institutional Sentiment & Analysis" (a part of our institutional research). These additional tools are our "Smart Money" poll, Amateur Trader survey, and our Senticator. All are proprietary surveys conducted by us.

We have found that the Senticator tends to be right by the end of the week (as much as 82.7% of the time), though it tends to be more accurate in a rising market than a falling one.

The "Smart Money" pollees are very useful when there is divergent opinion. It's generally NOT a good idea to fade the "Smart Money" unless "'EVERYONE'" (all sentiment measures) is in agreement. When in doubt about the meaning of the Wall Street Sentiment Survey, defer to the "Smart Money" poll or fade the "Amateur Survey". The "Smart Money" guys are folks with whom I've worked or whom I've watched for YEARS. They all have different approaches and they're all VERY good (not infallible, just good analysts/traders).

The Amateur Surveyees are your classic more emotional traders who tend to be wrong when they are heavily leaning in any one direction--which is often at a turning point.

In addition to these surveys, we chronicle multiple other polls and surveys including those conducted by our sister firm, Traders-Talk.com. We also review options data and fund shifts at Rydex. Additionally, we are also the sole publishers of the T-4 indicator created by Traders-talk--which is a fantastic turn indicator.

Subscriptions to Institutional Sentiment and Analysis are $99 per year. This also includes special sentiment updates and reports. Our polls are unique and insightful, and our analysis is some of the most accurate on the Street.

Order today by calling 1-800-769-6980 or order on-line at  http://www.wallstreetsentiment.com/order.html