A WARNING SIGN IN SENTIMENT?
12 December 2010 by Cullen Roche
7 Comments
The bull/bear spread in the Investor’s Intelligence survey is close to generating a very important warning signal (courtesy of King World News)
“The Investors Intelligence Advisors Sentiment Survey bull-bear spread is once again moving towards the +40% danger zone. When the spread last broke above 40%, in October 2007, the market collapsed spectacularly.
In our most recent survey (see above), at the end of November, the bulls minus bears ratio maintained its uptrend off its September low and read +33.6%. Readings going into the start of the New Year are worth paying attention to, as a move into the forties would be a strong call for defensive measures.”
Source: King World News
Wait til this weeks survey comes out following the rally at the end of last week and what might continue early this week – I bet we eclipse 40.
Also – I harp on my volatility work a lot on this blog but I’ll once again make note….I was unwilling to short in size over the past few months because it failed to give a full short signal – caution yes, short no – that said, it is about 1-3 trading days away from such a signal assuming we get a few more low volatility days like we had last week. The last time it shot these signals out were at the precise top in Aug 98, Mar 00 and Oct 07 – to the day in 2/3 cases and within 2 days in the other…
Bulls can easily argue that this is just another 2003-2004. Or this time is different from 2007.
More here:
Charting A Ridiculously Extreme Market, In Which The Dumb Money Is The Most Confident It Has Been In 5 Years
Thanks Tom don’t normally read zero hedge but that was a good post– at least makes one think
That Zero Hedge graphs and even the one above show that NO ONE KNOWS. Look at the “smart money” chart, they were intensely bullish even though the market was getting creamed.
Always a reference point, but not one of the ones that I really focus on.
Even though the S&P declined in 2007 after Bull/Bear hit the 40-range, the previous 3 times in 2003-5 the market continued upward. I do have doubts about the current market direction, but I don’t see how this indicator is telling me anything useful.
Overenthusiasm definitely is a recipe for disaster, but this looks extremely unimpressive. A magic number of 40 as an indicator based on ONE incident in 10 years seems like apophenia to me.