INVESTORS HAVEN’T BEEN THIS BULLISH SINCE 2007 MARKET PEAK
by ilene - November 18th, 2010 3:50 pm
INVESTORS HAVEN’T BEEN THIS BULLISH SINCE 2007 MARKET PEAK
Courtesy of The Pragmatic Capitalist
Being bearish is officially out of style. Sentiment readings have reached well beyond excessively bullish levels. The most recent Investor’s Intelligence survey showed another sharp increase in bullishness at 56.2%. This 7.6% surge in bullishness is the largest one week jump since April 2010. At 56.2% this is also the highest reading since December 2007. The last time bullishness was even near these levels was April 28th, 2010 just days before the flash crash.
Last week’s AAII survey also showed extraordinarily high levels of bullishness at 57.6%. This reading is literally off the charts and almost 10 points higher than bullish sentiment at the April highs.
Bespoke Investments highlighted how unusual it is to see both of these sentiment polls at such high levels:
“At a current level of 113.8%, the combined reading is the highest since mid-October 2007, which was shortly after the S&P 500 reached its all-time closing high of 1,565.15. More recently, the last time combined bullish sentiment was above 100% was in April 2010.”
“Buy the dip” and “don’t fight the Fed” have become universal rally cries in recent weeks. It now appears as though no one believes the market can sustain a decline. Unfortunately, the market generally frustrates the most people most of the time. If that saying rings true today the market is at a particularly risky juncture.
*AAII survey will be updated tomorrow after its latest release.
Update: AAII sentiment fell 17.6% this week to 40%. According to Charles Rotblut this is the largest decline since January 2009. Like the current reading, that decline followed a multi month high in sentiment. The market ultimately plunged until sentiment hit its low of 19% in March 2009.
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DiggLooking More Like a Top Than a Bottom: ETF and Stock Market Outlook
by ilene - October 26th, 2010 2:13 am
Get a Free Special Report from Wall Street Sector Selector
Looking More Like a Top Than a Bottom: ETF and Stock Market Outlook
Daily ETF and Stock Market Outlook from John Nnyaradi’s Wall Street Sector Selector
Instratrader Indicators:
Red Flag: We Expect Lower Prices Ahead
Daily Technical Sentiment Indicators: Neutral
Short Term Trend: Neutral
Today major indexes saw yet another failed rally at major resistance in spite of all the euphoria over the weekend’s G20 meeting communiqué that was widely seen as a license for the United States to continue trashing its currency and so support “risk on” assets.
As everyone knows by now, a declining dollar has meant a rising stock and commodity market, but today the dollar declined and the equities markets were unable to hold onto meaningful gains.
It increasingly appears that the major factor keeping the market afloat is the anticipated Federal Reserve quantitative easing at its meeting next week with a secondary factor being the notion that the Republicans will reclaim at least the House of Representatives in next week’s election.
It also increasingly appears that both of these events very likely have already been discounted by the market and that market participants could be “selling on the news,” as so often happens.
Overall, this looks more like a top than a bottom when you add up declining breadth and participation by individual stocks, overly bullish investor euphoria and a market that appears to be more sustained by government intervention and support than fundamentals and improving sales and earnings.
The next week will be pivotal on both a technical and fundamental basis. Wall Street Sector Selector remains in the ‘red flag’ mode, expecting lower prices ahead.
Disclosure: No positions mentioned. Wall Street Sector Selector holds various inverse ETF positions and positions can change at any time.
Sure Thing?!
by ilene - September 29th, 2010 1:23 am
Sure Thing?!
Courtesy of Mish
Last week, David Tepper, a billionaire hedge fund titan and president of Appaloosa Management remarked on CNBC …
Two things are happening. It’s that easy sometimes. Either the economy is going to get better by itself, in the next 3 months and what assets are going to do well? You can guess what assets will do well – stocks are going to do well, bonds won’t do so well, gold won’t do as well. OR The economy is not going to pick up in the next three months and the Fed is going to come in with QE. Right? Then what’s going to do well? Everything! In the near term – Everything!
Video
Earnings vs. Share Prices
One might not be able to argue with Tepper’s past performance, but one sure can argue with his current logic. Stocks do not necessarily go up because earnings go up. Stocks rise or fall primarily based on sentiment.
Right now, sentiment is so bullish and earnings estimates so lofty there is room for hefty earnings expansion that falls short or estimates. Buying stocks that miss wildly optimistic earnings estimates is not likely to work out well.
Furthermore, even if earnings do come in on target, there is no historic guarantee that stock prices follow. For example, on March 31, 1973 the S& P was at 111.52 with trailing earnings of $6.80. Seven years later, on March 31, 1980 the S&P was at 102.09 with trailing earnings of $15.27.
Thus, over a span of seven years, earning rose 125% while stock prices fell 8.5%!
What happened? The PE ratio on the S&P fell from 16.40 to 6.68, that’s what.
Moreover, those were real earnings then. Now, corporations hide garbage in SIVs with the blessing of the Fed and analysts cite pro-forma earnings that throw out "one-time" charges that occur with increasing regularity.
Thus, anyone who says stock prices will go up because earnings go up, does not understand history. This does not make Tepper wrong, but it does make his argument fallacious.
What About Quantitative Easing?
Tepper also argues that everything will be good if the Fed falls back on quantitative easing. Really?
The Cleveland Fed has a series of nice charts on Japan’s Quantitative Easing Policy
Japan’s Quantitative Easing vs. Price Inflation
Japan’s Quantitative Easing in Trillions of Yen
After a series
…
Burning Down the House; New Home Sales Consensus 330K, Actual 276K, a Record Low; Nationwide, Zero New Homes Sold Above 750K
by ilene - August 27th, 2010 2:27 am
Burning Down the House; New Home Sales Consensus 330K, Actual 276K, a Record Low; Nationwide, Zero New Homes Sold Above 750K
Courtesy of Mish
I failed to comment yesterday on the huge miss by economists on consensus new home sales, but Rosenberg has some nice comments today in Breakfast with Dave.
Once again, the consensus was fooled. It was looking for 330k on new home sales for July and instead they sank to a record low of 276k units at an annual rate. And, just to add insult to injury, June was revised down, to 315k from 330k. Just as resales undercut the 2009 depressed low by 15%, new home sales have done so by 19%. Imagine that even with mortgage rates down 100 basis points in the past year to historic lows, not to mention at least eight different government programs to spur homeownership, home sales have undercut the recession lows by double-digits.
in the aftermath of a credit bubble burst and a massive asset deflation, trauma has set in. The rupture to confidence and spending from our central bankers’ and policymakers’ willingness to allow the prior credit cycle to go parabolic has come at a heavy price in terms of future economic performance. Attitudes towards discretionary spending, credit and housing have been altered, likely for a generation.
The scars have apparently not healed from the horrific experience with defaults, delinquencies and deleveraging of the past two years — talk about a horror flick in 3D. The number of unsold homes on the market exceeds four million and that does include the shadow bank inventory, which jumped 12% alone in August, according to the venerable housing analyst Ivy Zelman.Nearly 1 in 4 of the population with a mortgage are “upside down” and as a result are now prisoners in their own home. We have over five million homeowners now either in the foreclosure process or seriously delinquent. The government’s HAMP program was supposed to bail out between 3 and 4 million distressed homeowners and instead we have only had a success rate of fewer than half a million.
Now back to the new home sales data. Every region in the U.S. was down, and down sharply. The homebuilders did not cut their inventory levels and as a result, the backlog of new homes surged to 9.1 months’ supply from 8.0
…
SENTIMENT TAKES A TURN FOR THE WORSE
by ilene - August 20th, 2010 3:19 am
SENTIMENT TAKES A TURN FOR THE WORSE
Courtesy of The Pragmatic Capitalist
Investor sentiment took a turn for the worse this week as most investors became increasingly bearish. The Investor’s Intelligence survey showed a steep 5% decline in bullishness while the AAII‘s survey showed an even larger decline of 9.7%. Although both surveys have declined dramatically in the last week neither is at extremes:
Charles Rotblut of AAII elaborated on the AAII results:
“Bullish sentiment, expectations that stock prices will rise over the next six months, fell 9.7 percentage points in the latest AAII Sentiment Survey. Bullish sentiment registered 30.1%, a six-week low. The historical average is 39%.
Neutral sentiment, expectations that stock prices will be essentially unchanged over the next six months, fell 2.7 percentage points to 27.4%. The historical average is 31%.
Bearish sentiment, expectations that stock prices will fall over the next six months, rose 12.4 percentage points to 42.5%. This is a four-week high. The historical average is 30%.
Bearish sentiment has been firmly above its historical average for 14 out of the last 15 weeks. Sustained volatility in the market, continued economic uncertainty, a negative year-to-date return for the S&P
500 and low bond yields are all combining to fray individual investors’ nerves. Confidence is likely to remain fragile until investors have a sense that a bottom has been established for stock prices.”
Source: AAII & II
A Note on Sentiment (The Bullish Case for Stocks Part 1)
by ilene - August 16th, 2010 2:35 pm
A Note on Sentiment (The Bullish Case for Stocks Part 1)
Courtesy of Charles Hugh Smith, Of Two Minds
The sentiment and media news flow is so uniformly Bearish that I think the herd is running hard--and that makes me hesitant to join it.
I am seriously demanding you read the HUGE GIANT BIG FAT DISCLAIMER below before reading further because I am conducting a highly speculative thought experiment, NOT offering investment advice. This is the freely offered ramblings of an amateur observer, and nothing else.
The only problem with being Bearish on the stock market now is that everyone else is Bearish, too. Frankly, that’s extremely Bullish. In my many years of observing the stock market, it seems the ideal time to go short is when complacency is running high and bad news is being discounted--say, just like the state of the market in late April, 2010, just before the wheels fell off and the market began its slide to July lows. (Never mind the "flash crash.")
The reverse is also true. The time to get Bullish is when everybody hates stocks, loves bonds and junk bonds, when the financial media is groaning under the weight of Bearish commentary and charts and the few remaining Bulls are dismissed as cheerleaders or mocked as perma-Bulls, and when various charts, historical data and omens all predict that a crash is just around the corner.
That’s what bottoms look like, not tops. Yet the herd is running fast and hard, expecting a crash or a sharp decline in September and October, because that’s what "should happen" for a number of good reasons: the economy sucks, and historically the market tanks in those months.
Except when it doesn’t. How many times does the stock market do what it "should" when almost everyone expects it to?
Let me put it another way: If you really think the market will crash or tank bigtime in mid-August or September, then when do you sell? Do you wait around for the crash? Heck no. You sell long before the anointed window of crashability opens.
In other words, everybody who wanted to sell has already sold. If everybody that wanted to sell has already sold, then who’s left to sell off hard enough to crash the market?
We all expect the market to crash or decline, so we sell, but some mysterious group of clueless money managers who have read…
Is A Market Crash Coming? The WSJ Ponders…
by ilene - August 13th, 2010 6:08 pm
Is A Market Crash Coming? The WSJ Ponders…
Courtesy of Tyler Durden
In a unorthodox piece by the WSJ, which goes direct to discussing some of the less than pleasant possible outcomes of central planning, Brett Arends asks "could Wall Street be about to crash again? This week’s bone-rattlers may be making you wonder" and says: "way too many people are way too complacent this summer. Here are 10 reasons to watch out." And without further ado…
- The market is already expensive. Stocks are about 20 times cyclically-adjusted earnings, according to data compiled by Yale University economics professor Robert Shiller. That’s well above average, which, historically, has been about 16. This ratio has been a powerful predictor of long-term returns. Valuation is by far the most important issue for investors. If you’re getting paid well to take risks, they may make sense. But what if you’re not?
- The Fed is getting nervous. This week it warned that the economy had weakened, and it unveiled its latest weapon in the war against deflation: using the proceeds from the sale of mortgages to buy Treasury bonds. That should drive down long-term interest rates. Great news for mortgage borrowers. But hardly something one wants to hear when the Dow Jones Industrial Average is already north of 10000.
- Too many people are too bullish. Active money managers are expecting the market to go higher, according to the latest survey by the National Association of Active Investment Managers. So are financial advisers, reports the weekly survey by Investors Intelligence. And that’s reason to be cautious. The time to buy is when everyone else is gloomy. The reverse may also be true.
- Deflation is already here. Consumer prices have fallen for three months in a row. And, most ominously, it’s affecting wages too. The Bureau of Labor Statistics reports that, last quarter, workers earned 0.7% less in real terms per hour than they did a year ago. No wonder the Fed is worried. In deflation, wages, company revenues, and the value of your home and your investments may shrink in dollar terms. But your debts stay the same size. That makes deflation a vicious trap, especially if people owe way too much money.
- People still owe way too much money. Households, corporations, states, local governments and, of course, Uncle Sam. It’s the debt, stupid. According to the Federal Reserve, total U.S.
…
STAT OF THE DAY: 93% OF ANALYSTS EXPECT S&P TO RALLY HIGHER
by ilene - March 19th, 2010 6:19 pm
STAT OF THE DAY: 93% OF ANALYSTS EXPECT S&P TO RALLY HIGHER
Courtesy of The Pragmatic Capitalist
As if sentiment wasn’t already starting to get a bit too bullish! The latest compilation of analyst estimates and year-end targets is now calling for substantially higher earnings and equity prices. Of the 13 major banks, JUST ONE (Andrew Garthwaite of Credit Suisse) is calling for the S&P 500 to finish the year below the current level. We’ve covered Garthwaite’s full year outlook and it’s very much in-line with our own – a relatively robust first half and a dicey second half. On the other end of the spectrum is Binky Chadha whose price target sits at 1325.
Firm Strategist 2010 Close 2010 EPS =============================================================== Bank of America David Bianco 1,275 $75.00 Bank of Montreal Ben Joyce 1,225 $74.50 Barclays Barry Knapp 1,210 $71.00 Citigroup Tobias Levkovich 1,175 $76.50 Credit Suisse Andrew Garthwaite 1,125 $77.00 Deutsche Bank Binky Chadha 1,325 $80.80 Goldman Sachs David Kostin 1,250 $76.00 HSBC Garry Evans 1,300 JPMorgan Thomas Lee 1,300 $81.00 Morgan Stanley Jason Todd 1,200 $77.00 Oppenheimer Brian Belski 1,300 $76.00 RBC Myles Zyblock 1,225 $76.00 UBS Thomas Doerflinger 1,250 $81.00 --------------------------------------------------------------- Mean 1,243 $76.82 Median 1,250 $76.25 High 1,325 $81.00 Low 1,125 $71.00
Source: Bloomberg
MORGAN STANLEY: PREPARE FOR A SELL-OFF
by ilene - March 17th, 2010 5:19 pm
Pragcap looked and looked and looked and found it. One lone bank afloat in bull-land sea sees risk in the market waters. – Ilene
MORGAN STANLEY: PREPARE FOR A SELL-OFF
Courtesy of The Pragmatic Capitalist
It wasn’t easy to find in this sea of bulls, but there is actually a bank out there that is not full-blown bullish following the huge rally of the last month. Morgan
Morgan Stanley says these two risks could overshadow the market in the coming weeks as investors adjust their portfolios to account for the large discrepancy between bulls/bears and risk assets versus lower risk assets. According to Morgan Stanley the put/call ratio represents overly bullish sentiment levels that are historically followed by sell-offs. In addition, the sign of excessive risk can be best seen in the run-up in the small cap vs. large cap ratio. Risk assets, represented by the Russell here, have surged to their highest ratio in terms of large caps in the last 12 months:
Source: Morgan Stanley
Mutual Fund Cash Depletion Highest Since 1991
by ilene - March 9th, 2010 4:54 pm
Mutual Fund Cash Depletion Highest Since 1991
Courtesy of Mish
In what can best be described as a contrarian indicator with an uncertain timing trigger, Mutual Fund Cash Depletion Highest Since 1991.
Equity mutual funds are burning through cash at the fastest rate in 18 years, leaving them with the smallest reserves since 2007 in a sign that gains for the Standard & Poor’s 500 Index may slow.
Cash dropped to 3.6 percent of assets from 5.7 percent in January 2009, leaving managers with $172 billion in the quickest decrease since 1991, Investment Company Institute data show. The last time stock managers held such a small proportion was September 2007, a month before the S&P 500 began a 57 percent drop, according to data compiled by Bloomberg.
Stocks will rally this year as the prospect of higher interest rates lures cash from fixed-income securities to equity accounts, says Mark Bronzo at Security Global Investors. Data from ICI, the Washington-based lobbying group for professional money managers, show investors have pumped $369 billion into bond funds since March 2009 versus $23.4 billion for equities.
“There’s so much money in the fixed-income market and there’s so much money in money-market instruments paying almost nothing,” said Bronzo, whose firm oversees $21 billion, in an interview from Irvington, New York. “If that money shifts to stock funds, it’s going to be very bullish.”
Equities may be boosted by investors deploying some of the $3.17 trillion held in money-market funds tracked by ICI. While $754.3 billion has moved from the accounts in 14 months for the fastest decline on record, Bronzo says more cash will be withdrawn as investors gain confidence in the economy.
It gets tiring pointing this out, but the only time money can move into the equity market is at IPO time or other offerings. Otherwise it is impossible for sideline cash to move into equities. For every buyer there is a seller. At the end of any normal equity transaction, there is as much cash on the sidelines as before.
So many misunderstand the simple mathematical function of buying and selling, that I feel obliged to make corrections.
Sentiment, Not Sideline Cash, Is The Driving Force
Share prices do not move up because sideline cash comes in (as noted above it cannot happen in the first place). Share prices rise or fall…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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