Friday, November 25, 2011

Investor Sentiment Not As Bad As I Expected

Given all the negative news one is hearing and reading about, I expected investor bullish sentiment to be much worse than actually reported by AAII. Much of the European news is negative and today, at the close of trading, the Dow Jones Industrial Average reported its worst Thanksgiving week performance (-4.8%) since the markets began observing the Thanksgiving holiday in 19421.

As the below chart details, the bullish sentiment declined to 32.7% this week versus last week's reading of 41.9%. Bearish sentiment rose to 38.3% versus the prior week's level of 31.0%. This results in a bull/bear spread of -5.6%. Market bottoms have generally occurred when the bullish sentiment reading falls into the 20%+ range and the bull/bear spread widens to a negative 20+%.

From The Blog of HORAN Capital Advisors

Additionally, the CBOE Equity Put/Call Ratio, although elevated, was reported at .72 on Wednesday. In the case of the equity/put call ratio, a level above 1.0 is a pretty good sentiment level suggesting the market may be oversold.

From The Blog of HORAN Capital Advisors

Lastly, the percent of S&P 500 stocks trading above their 50 day moving average has declined from over 90% at the beginning of November to 21% on Wednesday. The market appears oversold by this measure, however, not significantly.

From The Blog of HORAN Capital Advisors

1The Wall Street Journal

1 comment :

Youthful_Investor said...

I believe the bullish nature of investors, despite the circumstances in large part is due to our knowledge of the opportunities available. It looks like a lot of what is happening is an honest result of emotion and fear. This might be validated by rail stocks like NSC or UNP admitting profits are up and business is rising consistently. Europe might be in serious trouble the North America looks promising and I expect to take full advantage of it.