Sentiment Bull vs Bear
Enviado: 6/2/2007 15:06MARK HULBERT
Apocalypse later
Commentary: Bull market keeps getting new lease on life
PrintE-mailDisable live quotesRSSDigg itDel.icio.usBy Mark Hulbert, MarketWatch
Last Update: 12:01 AM ET Feb 6, 2007
ANNANDALE, Va. (MarketWatch) -- Contrarian analysis has been poised on the edge of a stock market sell signal for several months now.
But every time such a sell signal appears imminent, advisers pull back a bit and their restraint gives the bull market a bit more lease on life.
Consider the latest readings of the Hulbert Stock Newsletter Sentiment Index (HSNSI), which represents the average recommended stock market exposure among a subset of short-term stock market-timing newsletters followed by the Hulbert Financial Digest. As of Monday night, the HSNSI stood at 53.1%.
To be sure, the current reading is far closer to the bullish extreme of advisors' historical range than to the bearish extreme; that range extends from minus 81.8% to plus 79.8%. Nevertheless, the 53.1% at which the HSNSI currently stands represents a significant retreat on the part of the average newsletter editor.
In late November, for example, the HSNSI stood at 70.8%. At the time, the Dow Jones Industrial Average ($INDU : Dow Jones Industrial Average stood below 12,300, in contrast to its current level of 12,622. In other words, in the face of a nearly 400-point rise in the DJIA, the average newsletter editor has reduced his recommended equity exposure by more than 17 percentage points, from 70.8% to 53.1%.
That's encouraging from a contrarian point of view, since major market tops typically are accompanied by stubborn bullishness. That does not appear to be what we're witnessing now.
This has been surprising to many contrarians, me included. When the HSNSI hit its peak above 70% in late November, for example, I wrote a column under the headline, "It was nice while it lasted," which concluded with a quotation from a prominent contrarian to the effect that, though stocks could continue to rise for a while longer, the bearish "handwriting is on the wall." See Nov.21 column
That handwriting may still be on the wall, of course, but that wall is turning into more of a wall of worry than contrarians were expecting in late November. Contrarians believe that the ultimate top in the bull market will come when worry gives way to greed when advisers are falling over themselves trying to jump onto the bullish bandwagon.
I should also note that other sentiment measures are telling a story similar to the one told by the HSNSI. Consider the barometer of investment newsletter sentiment that is tallied by Investors Intelligence, edited by Michael Burke and John Gray. The peak reading of their measure in recent months came in early December, when 59.8% of the newsletters they monitor were bullish. The comparable current reading is 53.3%.
Burke and Gray, the authors of the "handwriting is on the wall" quotation from November, are sticking to their belief that advisory sentiment is more bearish than bullish right now. They acknowledge that sentiment barometers such as theirs can be volatile and sentiment can remain at high levels for weeks.
Nevertheless, they insist, "extreme levels of optimism ultimately prove negative as they reflect fully invested positions, leaving little cash for additional purchases."
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.
Apocalypse later
Commentary: Bull market keeps getting new lease on life
PrintE-mailDisable live quotesRSSDigg itDel.icio.usBy Mark Hulbert, MarketWatch
Last Update: 12:01 AM ET Feb 6, 2007
ANNANDALE, Va. (MarketWatch) -- Contrarian analysis has been poised on the edge of a stock market sell signal for several months now.
But every time such a sell signal appears imminent, advisers pull back a bit and their restraint gives the bull market a bit more lease on life.
Consider the latest readings of the Hulbert Stock Newsletter Sentiment Index (HSNSI), which represents the average recommended stock market exposure among a subset of short-term stock market-timing newsletters followed by the Hulbert Financial Digest. As of Monday night, the HSNSI stood at 53.1%.
To be sure, the current reading is far closer to the bullish extreme of advisors' historical range than to the bearish extreme; that range extends from minus 81.8% to plus 79.8%. Nevertheless, the 53.1% at which the HSNSI currently stands represents a significant retreat on the part of the average newsletter editor.
In late November, for example, the HSNSI stood at 70.8%. At the time, the Dow Jones Industrial Average ($INDU : Dow Jones Industrial Average stood below 12,300, in contrast to its current level of 12,622. In other words, in the face of a nearly 400-point rise in the DJIA, the average newsletter editor has reduced his recommended equity exposure by more than 17 percentage points, from 70.8% to 53.1%.
That's encouraging from a contrarian point of view, since major market tops typically are accompanied by stubborn bullishness. That does not appear to be what we're witnessing now.
This has been surprising to many contrarians, me included. When the HSNSI hit its peak above 70% in late November, for example, I wrote a column under the headline, "It was nice while it lasted," which concluded with a quotation from a prominent contrarian to the effect that, though stocks could continue to rise for a while longer, the bearish "handwriting is on the wall." See Nov.21 column
That handwriting may still be on the wall, of course, but that wall is turning into more of a wall of worry than contrarians were expecting in late November. Contrarians believe that the ultimate top in the bull market will come when worry gives way to greed when advisers are falling over themselves trying to jump onto the bullish bandwagon.
I should also note that other sentiment measures are telling a story similar to the one told by the HSNSI. Consider the barometer of investment newsletter sentiment that is tallied by Investors Intelligence, edited by Michael Burke and John Gray. The peak reading of their measure in recent months came in early December, when 59.8% of the newsletters they monitor were bullish. The comparable current reading is 53.3%.
Burke and Gray, the authors of the "handwriting is on the wall" quotation from November, are sticking to their belief that advisory sentiment is more bearish than bullish right now. They acknowledge that sentiment barometers such as theirs can be volatile and sentiment can remain at high levels for weeks.
Nevertheless, they insist, "extreme levels of optimism ultimately prove negative as they reflect fully invested positions, leaving little cash for additional purchases."
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.