Thursday, December 31, 2009

So What?

Here is a chart of the Investor's Intelligence Advisor's survey that comes to us courtesty of Elliott Wave International. I want to use this chart to illustrate the futility of drawing anything other than relatively short term conclusions from sentiment data polls.

A large number of blogs and opinion makers I follow cite the current high level of bullish sentiment among newsletter writers as evidence that another bear market leg is about to start. Some even think it will drop the averages below their March 2009 lows.

I remember a similar situation back in June of 2003, about 8 months after the October 2002 bear market low (first vertical green arrow on the chart). At the time bullish sentiment was even higher than it is now (blue dotted line). But the market advanced an additional 50% during the subsequent four years, a bull market punctuated by reactions of less than 10% in the averages during that time.

So what can we conclude about the future course of the averages from the current level of bullish sentiment among investment newsletters? Not a thing! At worst it suggests that a reaction of perhaps 10% or so is likely to develop within the next few weeks. But even that is not a forecast that can be written in stone.

What matters most for the market's longer term direction is that the general public still hates stocks and is pessimistic about the economy. Until that gloom lifts this bull market will continue.


  1. I often wonder what people are thinking. The truth is they don't think, they feel before they act. And right now, they feel very gloomy, so they interpret everything as bearish. I've seen this chart all over the blogosphere as well and marvel how everyone uses it to "proof" their bearish pov.
    If anything, it shows that we are currently seeing the birth of a new mega-bullmarket, risen from extremely negative sentiment to a first bullish exuberance as at the beginning of the last bull market in 2003. But as you say, it's all about feelings and NOT about thinking or analysis.

  2. Gotta love it

    largest number of bulls in 3 years(investors intelligence), the Vix is around 20(complete complacency) record low put/call ratios, and fund managers all around saying they are in, and you conclude no one likes this market? Brilliant.

    Pretty soon you'll be selling ice to Eskimos.

  3. The one important piece you omitted was back in march 2009 was eliott was also looking for the s&p to rally 1100 and the doe to hit 10,000 in 2009

    If that isn't contrarian, what is?

    Your recent bullish thoughts are anything but contrarian,

  4. I think Jeff misses the main point...that being the general public is not in yet. Happy New Year

  5. Sure, Sentiment has shorter time affects. Allow me to observe, that, there is a growing voice, daily advnaced over the media( Bloomberg, CNBC, and Carls Own View) that, the SUCKERS, Public will finally come and pay up for those that are now holding equities. May I point that there were times, when that did not happen, and those times, usually were associated with the CREDIT+HOUSING bubble burtsts( which makes this cycle different from other post WWII cycles). So, it is anybodies guess, if PUBLIC/BOZOS will pay up to the fullest extent they have in past cycles. No, I do not have a chrystall ball on this, but chances are that it will not, fully. And that means "this time it may look a bit different". Frankly, this is a mute point though. If and when that happens the DOW/GOLD ratio will be even less than it is now, therefore shifting your assets from equities to gold at gold corrections only, is the thing to do. Especially, because, Carls assumptions, i think, require a lot of new money/credit creation and Purchasing Power of Equties will not keep up with hard assets, until the secular bear low is in place for stocks, which 2009, highly likely, was not.

  6. Comments with lots of spelling and grammar errors really do make the argument of the commentator less credible!

  7. I don't get it. I thought the public was fully invested at the 2000 and 2007 tops. In fact it would of been hard to have been more fully invested. Exactly what tops are you referring too when the public was not in?

  8. Just look at the ICI numbers~ the public has heavily invested in bond funds throughout all the market advance since the March bottom. This week is the first week domestic equities had money inflow from the public at all. The numbers also support Carl's hypothesis of raising US$ and US domestic equities outperformance as the only place the public invests in stocks is foreign markets. I guess that's the gold bug / EEM crowd at work. Now we can all guess which market will out- and underperform most in 2010... from the contrarian analysis it is very clear.

  9. Dear Maria,
    I like the fact that you notice a lot of spelling and grammar errors.

    first comes from typing blind at the max speed( need to get a lot done)
    second comes from thinking in many different languages(fluent 5 understand 4 - computer languages) and putting the sentence in ENGLISH

    This is not to be disrespectful, I learned that people that really stick to subjects understand what I say perfectly, even though I express my ideas imperfectly and make not much effort about the form of the presentation. In this manner I was not prevented from graduating best schools/universities in the world with distinction.

    Sorry, I do not treat the form over substance. You are entiteled though and for that matter, I see in your sentence all form and no substance concerning the subject at hand

    Thank you for your comments, but they will ot cause me , a bit, to change my habits(:-

  10. I think the problem that carl do not see is the PE ration for broad market. The PE ratio for S&P500 is above 100 now. The intersting thing is that in the last past 100 years the PE never has been more 50, so comaring this market to any other market is wrong. Another intersting thing is that the huge jump on current PE happendjust in 2009, so that mean there no fundamental behind the current rally. Ovbiously investore are paying much more money now for this market that never happend in history before, so considering all these fact how would you see another 50% rally.

  11. Actually the p/e of the spx is 87. The p/e of the s&p inds. is only 37, about the same as last year if you can believe that one and the p/e of the dow inds. is only 18 which is about the same as last year.

  12. Look at the below link, you will find what I said about PE ration

  13. I have been following this blog on and off for about 18 months. 12 months of that we were in a vicious sell off.
    I have never known a time ( except for a matter of a few days) where Carl is not bullish.
    Looking back at random archives over many years, it always appears to be the same.
    I just wonder what percentage of days / months over the last ten years, this blog has been bullish versus bearish. I suspect the bullish is something in the region of90%+ but over that time period, the market had one of its worse performing decades ever.

    I think some of Carls short term predictions are excellent but not the longer term calls. Unfortunately I dont trade short term.

  14. I completely agree with boris, this time is absolutely different, and I find it somewhat idiotic to make any sentiment type comparison to that of the 2003 time period.. a time at which the housing 'kool-aid' was still in a somewhat introductory phase and consumers had just learned of all the newly minted home equity they could now start to extract. Any 'value' created during this period of euphoria (and hence reflected in the equity markets) is completely irrelevant. 2007 was the capitulation of the a decades long credit boom and now the entire system is in a phase of deleveraging that will last several years (much longer than what the equity markets have currently priced in).

    I find it extremely interesting how against elliot wave Carl is. It seems it would somewhat align with his contrarian ideology.. only time will tell which view prevails.

  15. Carl, Your comment about the persistence of ostensibly bullish exuberance, normally considered bearish, is correct. I don't care much for polled sentimenht measures and prefer market-based sentiment. Nevertheless, my measure of sentiment stayed "overbought" from June 2003 to July 2007, just as the polled sentiment you mention.

    Anecdotal internet chat site and main stream media sentiment remained bearish all that while as it is now.


    Tom D

  16. The market could bounce between 1150 and 950 for a couple of years and hit a P/E low of 11 or 12 by 2012. Without ever testing the bear market lows of 666, we could arrive at an investable P/E low. Because I think that much of the developing world is in a LT, multi-year bull market which will carry America with it, I find this to be the most likely scenario.

    It is true that the market has had one of the worst-performing decades ever. Unless we are Japan, and with our demographic growth and greater openness to immigration and assimilation I would argue we are not, is this not LT bullish?

    From what I can see, you are correct about Carl's bullish bias. However, it seems to work for him.

  17. Carl,
    What are your thoughts about the implications of being in an environment with raising interests (falling t-notes and t-bonds)? - My lifetime was only under falling interest rates, so I wonder how the implications are? Is it all about raising inflation & raw materials and a falling US$ longterm (except for a temporary respite for a year or so)?
    Thanks, Joe

  18. Have you guys noticed that everybody thinks 'Retail investor' is someone else.. Not them!

    Why am I or you are not retail?

  19. With 76% bulls, what is contrarian? Being Bearish or Being bullish?

  20. You know, it's funny
    money manager, David Rosenberg, constantly mentions that the public is shying away from equities and herding into government bonds, and he says it's a good thing

    Good for whom? I wonder

    No wonder equities do well, and junk bonds are all the rage over T Bonds

    Maybe it's different this time and public is right

    even if so, a line drawn by a ruler will show the world if a trend has changed or not