Wednesday, June 3, 2009

Investor's Intelligence Survey Update

Click on Chart to Enlarge

It's been about a month since I showed this survey, but on account of the continuing large drop in bearish opinion among investment advisors, I thought now would be a good time for an update. As of today's data release, the bearish % is only 25%. That is as low as it has been since late 2007, around New Year 2008.

Additionally, while not part of the chart above, there are a relatively large number of respondants expecting a correction in the market. While extremes in the bullish or bearish % are good contrary indicators, extremes in the % expecting a correction actually seem to be a non contrary indicator, as the market has had trouble making intermediate term gains in similar past instances.

So in summary, the bullish % is not back at bull market levels, but an extremely low % of advisors are bearish and many are expecting a pullback. If you were to give me this data and only told me that the 200 day MA is sloping down with no other price info, I would say that we should have a bearish bias in the intermediate term just due to past history of this survey.

Maybe later in the week I will talk more about a composite view of sentiment surveys that combines the 4 most popular surveys (II, AAII, Market Vane, Consensus Inc) into one reading. For now though, as of last weekend's data the composite was nearing a relative bullish extreme in opinion. Even in a bull market that correlates with sub par performance looking ahead several weeks. In a continuing bear market, these readings give way to very negative price action over the intermediate term typically.

Now as an aside and unofficial list of some trade ideas or at least watchlists for those interested......

TLT - long trade in bond ETF
UUP - long trade in US dollar ETF
DBA - short trade in grain + sugar ETF
XHB - short or put trade on home-builder ETF
ABX or GLD - short or put trade on gold ETF or ABX which appears to be a weak link in gold mining stocks


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