Bearish Sentiment Spikes

While some sentiment surveys are on the bullish side, ours is not one of them. Our sentiment survey came in at 29% bulls to 66% bears. It isn't often we see that many bears in our poll. We know it's bullish as sentiment goes, but how bullish? I've got some data to give you an idea. Here's this week's charts:




No signal was generated from the Top 50 this week. Stock allocations were the same as last week (94%). That is bullish in my view.



No signal was generated from the Total Tracker this week. Stock allocations inched up modestly and total stock allocations are now back over 40%, but not by much.



Here's some data on overly bearish sentiment readings for our survey. Going back to July of 2010, I found eleven weeks (11) where bearish sentiment was 60% or more. In those eleven weeks, had you been invested 100% in the S fund, you would have realized a gain of 20.67%. And there were significant gains in the C and I funds too. I could have thrown in some high 50's bearish readings too, as they saw some significant gains as well. One other thing I note about this chart is that our total stock allocation for this week is the lowest of all eleven weeks with bearish levels over 60%.



The S&P 500 continues to see more weakness than the Wilshire 4500, but the chart remains bullish (longer term) using the Ichimoku clouds as a guide. Trend support is not far below price (rising trend support line and Leading Span A line). RSI and MACD are largely flat and neutral. Last week, I did expect more selling pressure and said I was looking for the 1660 area as a first line of support. We got the selling pressure and price has so far remained above support.

To see this week's full analysis, follow this link http://www.tsptalk.com/members/

 

[FireWeatherMet]

Noticed that our Top 50 have had quite a few moe "cash outs" past 2 days.
Now I believe somewhere around 10 (or 20%) are now in G or F.

What do you make out of that?

FWM

 

[coolhand]

As of yesterday's close, stock allocations have fallen by 14% for the Top 50. If that trend holds into Friday and stock allocations fall by at least 10%, then it would be a buy signal for next week.

Having said that, the market is in a precarious situation from a technical perspective and in some cases sentiment is not all that bearish in other sentiment surveys besides our own. Given the political drama currently playing out one would think sentiment might be more bearish. The fact that it isn't may be a problem. But I still think "they" won't let things get too far out of hand even if the market moves lower. That may be what so many traders are counting on. And it stands to reason that traders are anticipating some degree of a solution to the debt ceiling and Government shutdown issues before the deadline. That means a potential rally to the upside could happen on news of a compromise. It's a tough call in my opinion, to guess how this will play out and what the reaction of the market might be. I would not bet on it either way. But I do think that given our IFT limitations that it makes sense to have some exposure to stocks, but also have something on the sidelines in case this market corrects to a larger degree than expected. That way, you've got funds either participating in a rally or ready to deploy in case it goes the other way.