Meanwhile, the Investors Intelligence Advisors Index - a metric of the mood of stock market newsletter editors - is finally showing extreme levels of bullishness. This week’s results pushed the bulls slightly upwards to 51.5% while at the same time reducing the bears to just 19.8%. That widened the gap between the two camps to almost 32% points or put another way, we now have almost 3 optimistic editors for every gloomy one.
So it took the II a few weeks to arrive at the +50% levels of bullishness that we saw from the AAII earlier this month. But while the AAII’s recent lopsided sentiment corresponded to the swing top in May 2008, the discrepancy in the II is even more ominous.
The last time we had less than 20% of the stock market advisors bearish was in October 2007 - the start of the bear market. While the percentage points between the two camps isn’t as wide as in October 2007 (40% points), it is 31.7% points - close enough to merit caution for the bulls.
Right now, looking at these two popular sentiment metrics can be confusing. Either one is ahead of the other or they are both wrong. Fortunately there are many other indicators we will take a look at after the jump.
Conference Board: Consumer Confidence
The preliminary data for August was stronger than expected, as it rose to 54.1 - the first increase since May 2009:
More interesting was the sub-index measuring investor sentiment. Bullishness for equities rose 8% points to 36.5% while bearishness decreased (by 7.6% points) to 26.4%. That may not seem like any extreme level, especially when compared to the AAII and II metrics cited above, however a 10.1% point gap is the largest bullish one since - you guessed it - October 2007.
The Daily Sentiment Index (DSI)
Jake Bernstein’s DSI continues to climb along with the S&P 500. It started this month at 87% and it has been nudged slightly higher by its end to 89%. This is, needless to say, rather extreme and from a contrarian perspective, bearish. It leaves its normal ‘high’ range of 60%-70% in the dust and is even the highest since 2007. Which should raise a few eyebrows as we know thanks to hindsight, that was a (cyclical) bull market. And here we are now, merely 50% higher after a counter-trend rally and even more giddy than at the bull market top. In contrast, at the low in late February 2009 the DSI was 2%.
Option Traders
There is no significant change in the sentiment picture from either the ISEE Sentiment index or the CBOE’s put call ratio index. The ISEE (equity only) finished the week with almost twice the number of call buyers as put buyers. But it continues to be mired in neutral territory once we step back for some perspective. The same can be said for the traditional put call ratio as it recovered slightly from last Friday’s one day (0.4) extreme reading. The short term average of the put call ratio (equity only) has fallen below the up trending channel as shown in last week’s sentiment overview.
Gallup Index of Investor Optimism
Dovetailing with the Consumer Confidence statistics mentioned above, the most recent monthly Gallup poll of investor optimism rose to its highest level for the year:
This broad measure of investor perceptions continued to rise out of the historic low it reached earlier in the year when it fell to -64. That was the lowest it has ever fallen since its inception in October 1996. This month the index reached +9, the first time that it has regained positive territory since June 2008.
Checking in with the Greybeards
I like to keep a loose finger on the pulse of the market participants who I refer to as the ‘Greybeards’ - those who have been around more than a few market cycles and have profited to tell tales about it. Among these, Doug Kass has the distinction of calling the spring low and catching the rebound. So now that he is calling the top, we need to pay attention. Even more intriguing, a thestreet.com pollshows that 70% agree with him that the market has topped (while 30% don’t):
By the way, I mentioned Kass’ call days ago at news.tradersnarrative.com so if you want to stay current on interesting articles, news and analysis make sure you bookmark it and check back often.
David Rosenberg continues to label this a robust bear market rally and refuses to consider it as anything else. Needless to say, he expects lower prices ahead.
