Category Archives: Sentiment-Psychology

Tinder Box

By Biiwii

tinder box to ignite stock market sentiment rally?We have been using the Tinder Box theme in NFTRH lately.  As in, stock market sentiment is so bleak, so depressed as to be a Tinder Box with the elements to ignite a flame that bounces the market, to clear the over bearishness at least.

We  have successfully followed a plan every step of the way… 1. down from the August breakdown, 2. up on the bounce to SPX 1975 or 2040 (hit 2020) and now 3. down to a test of the October 2014 / August 2015 lows, which is a decision point between a bounce or an entry into a bear market (by making a lower low to October 2014).

We arrive here amid an over bearish sentiment backdrop that is all out of whack with what has actually just been a twitch by the market in the big picture (with bull parameters still intact).  So whether this is the bounce, as it seems to be – and we are getting some follow through despite the volatility – or it comes from a lower level, it is going to happen.

There were the small speculators way too short the market and Investors Intelligence data showing newsletter writers having totally abandoned the trend they rode for eons (well, since 2011 anyway).  They are now advising extreme bearishness to subscribers.  Here’s the latest graphic on that, courtesy of Doctor Ed and the Daily Shot.

Continue reading Tinder Box

Market Sentiment Update

By Biiwii

In the last 2 NFTRH editions, we noted extremely over bearish market sentiment conditions in Rydex bull/bear fund allocations and in Small Speculators’ net short positions. These sentiment indicators have been reset to traditional correction-ending, even bear market-ending levels.  That’s the reality.

The latter especially, has been a reliable contrary indicator.  Basically, the Small Specs have never been right at important market turns.  For instance, they were heavily net short in the late 1990’s but by the time the market topped in 2000, they had covered and become net long.  They have reliably been a contrary indicator all along the current bull market as well, going net short at each correction bottom, post 2009.

Add to this the Newsletter writer community, which has a vested interest in trend following and always looking right with the market.  The latest Investors Intelligence data by way of Pension Partners and the Daily Shot email service shows that NL writers have quickly gotten right with the bear, and the fear.

investors intelligence, market sentiment

Another indicator is the NAAIM Investment Managers data.  These managers sell down toward 70% to 100% cash at every market bottom.  They are now at around 75% cash.

naaim, market sentiment

Of course, market sentiment is market sentiment, economic fundamentals are economic fundamentals, monetary policy is monetary policy and global pressures are what they are.

In other words, sentiment is a condition, not the be-all, end-all director in any short-term period.  Just as the market floated for years with over bullish Investors Intelligence data for instance, the over bearish data now in play is a condition to future bullish events, but not necessarily a fine timing tool.

The Bear Market Everyone Saw Coming

By Biiwii

The title lets you know where this article is going.  For such a routine correction in the US stock market, the Psych/Sentiment backdrop has gotten way out of whack.  Do some analysis on Rydex Bull/Bear fund allocations among investors and you will find a historic knee jerk reaction into bear funds over bull funds (by those who still use Rydex funds).

Go do a Google Trends search on ‘stock market crash’ or ‘bear market’ and you get the following results, showing a big rise in interest among the public.

Market sentiment: stock market crash

Market sentiment: bear market

Continue reading The Bear Market Everyone Saw Coming

Man, That’s Cheesy…

By Biiwii

[edit] I actually agree with Sinclair’s views on monetary sociopaths.  Beyond that and certain dogma that rings true, it’s too much information the likes of which has frightened people into what have been incorrect positions for years.

After the now-famous WSJ post, it seemed as if a bottom had just been called in gold…

Let’s Be Honest About Gold: It’s a Pet Rock

It seemed that the elements were in place for a contrarian rally if not bull market bottom.  Along with negative gold items routinely appearing in the financial media and a Commitment of Traders structure that had become very bullish, gold sentiment was bleak by indicators we track in NFTRH.

My how a 6% rally with an accompanying stock market down spike have changed things…

sinclair, gold sentiment still not ready
Click for the video @ YouTube

Here is the article associated with the video, sent to me yesterday…

Plunge Protection Team Losing Control of Markets -Jim Sinclair

I won’t even go into Sinclair and his ‘same old, same old’ spiel, trotted out the minute the stock market cracked.  Let’s just focus on one micro element of a case that implies gold bug sentiment is not yet where it needs to be for a real bullish stance.  From the article’s comments section…

Steve (website visitor):  “I used to believe in the rampant manipulation of the gold markets until i got proper information and grew up. If Gold is always manipulated to the downside, why buy it?”

Greg Hunter (website host):  “Steve you grew up to be an idiot. I got “proper information” from Dr Paul Craig Roberts* who laid out an analytical case for gold manipulation.”

It’s concerning if you are a gold bug, because the bear has apparently not dug deep enough into all the bunkers to devour the most ardent holdouts.

  • Above we have “Dr Paul Craig Roberts”.  From NFTRH 355 (very coincidentally I was reminded of this by a subscriber this morning):

Have you noticed that the bear and/or gold communities tend to make sure they call John Hussman “Doctor Hussman”, Jim Willie “Doctor Willie”, Robert McHugh “Doctor McHugh”, Chris Martenson “Doctor Martenson” and any other Ph.D. writing about markets “Doctor”, while conveniently forgetting to label the likes of “Doctor Bernanke” as such (“Helicopter Ben”)?

I don’t know about you, but when I am reading articles and I see a writer labeling someone with whom he or she agrees (and with whom they want you to agree) “Doctor” in order to convince the reader of the material’s seriousness or worthiness I think “man, that’s cheesy”.

S&P Enters Correction!

By Biiwii

Hey guys, the S&P entered a correction the moment it broke down from the nose of the Diamond and the pinch between the MA’s 50 and 200.  But here’s Reuters by way of Fidelity to clue us in that S&P entered a correction today.

Wall Street tumbles again as S&P enters correction (complete with classic stock photo of stressed out trader).

Sad trader from Reuters/Fidelity

“NEW YORK (Reuters) – U.S. stocks ended more than 3 percent lower on Monday, their fifth straight drop, in an unusually volatile session that confirmed the S&P 500 was formally in a correction.”

I don’t know about you guys, but I’ll take the informal kind of correction and prepare accordingly.  It started when SPX dropped out of the red dot for the 2nd time and was confirmed when 2050, a whopping 157 points ago, was lost.

Here is what actually happened.  SPX chose ‘down’ from its moving average decision point.  This had been the most likely direction given momentum, leadership and participation that had been fading long before hand, although it also seemed pretty obvious.  I mean, you and I both saw it, right?  SPX then broke support #1, turning into resistance #2.  SPX then broke support #2, turning into resistance #1.

s&p 500

And now here we are.  The bull market is intact and the test is at hand.  What the market has going for it is Mr. Frumpy Trader up there, and a lot of bear market calls coming out.

So everybody’s got the bear memo, the Margin man has probably made a good amount of his collections and nothing is resolved.  Not unless the market loses the October lows.

Bond Safety?

By Biiwii

[edit]  Upon re-reading, it’s another of those posts I sometimes receive critiques about.  Few conclusions and no clear direction.  Maybe that is just the point though.

@ Fidelity…

Equity outflows at 15-week high as investors seek bond safety

And there they go, conventional lemmings jumping from the frying pan, into the fire, soon to realize the fire is way too hot, and heading for that cliff over there.

(B)ut (i)t i(s) (w)hat (i)t (i)s and (N)otes (F)rom (T)he (R)abbit (H)ole are so named because we are all about anti-convention, as global markets have not been comfortably conventional since the late 1990’s, I think.  This most recent cycle has existed to put all of us malcontents, cranks and alarmists back in a box under the bed, if not into the dustbin of history.

Well today, conventional sheep are flocking to conventional positions.  “Bond safety” is what they run to when they are afraid of stocks.  Of course, with gold now showing strength, the promoters over there are retooling their former “China/India demand” and “employment growth will spur inflation, which will drive people to gold” pitches to something more appropriate for the times, when global economic contraction comes to the fore and deflation is front page news.

Imagine that, investors flocking to bonds while DEFLATION! is all up in the headlines.  Reminds me of Q4 2008, just before the next INFLATION.

This market is now officially fun again after the post-October drudgery that last month forced me to admit that my trading sucks and that I needed to take a time out and sit on my hands (as the market’s swings became too frequent and too contracted).

Do you see?  Investors are seeking safety in bonds.  Media are managing a global stock crash.  Bull trend followers’ heads are spinning (‘Am I still a brave, resolute, trend following stock bull?  Should I keep posting as such or is my inner fear barometer stronger than my resolve?’) and oh yes, the precious metals are bouncing while commodities continue to tank.

There are only a few entities who have called this environment.  One is an influence of mine, Bob Hoye (decisively, but on what some might find an inconveniently long time frame).  Another is NFTRH (less decisively, but on a very tight time frame).  This is a market that is going to put all the carnival barkers (including gold touts) in their rightful places because now changes are happening and it will not be so simple as ‘stocks are tanking, buy bonds!’ and obviously, the whole ‘economy brings inflation, buy gold!’ promo.

Tops are spinning on the table and it all makes perfect sense.  And I am not even a stock market bear.  I just do not buy or hold tops.  I look forward to a real bull market in the gold sector, but there is yet work to do folks.  The US market’s big trend is still up and gold’s is still down.  Not saying change is not in the offing, just saying trends have not yet changed.

With respect to gold, this summer’s event is so much more in line with fundamentals that matter than last summer’s Ukraine→Russia→Ebola pitch that was nothing more than promotion.  But there remain some rocks beneath the surface.

As to the article linked above, this certainly does put Martin Armstrong front and center, with his ‘final flight to the safety of the government bond bubble’ analysis…

LONDON (Reuters) – Equity outflows hit a 15-week high of $8.3 billion in the past week, with fears of a China-driven global economic crisis pushing investors towards safe-haven money-market funds and Treasuries, Bank of America Merrill Lynch said on Friday.

I have not really known what to make of Marty and his computer, but this is 100% in line with his forecast.

I just love a market where things are in motion.  Robo market was a dead thing, momentum waning and hopes fading.  Now resolution is to the downside.  From this point, it is now time to throw out the easy analysis and be prepared for the counter-cyclical environment we have expected upon completion of the post-2008 economic recovery (and all that paper and all those digits behind it).

Now you do not get points for just showing up and following the trend.  Now you find out if that which you hold true actually is.

Market Sentiment Getting Too Bearish

By Biiwii

Well, bearish sentiment is getting stoked up but good.  There will be a bounce or rally at some point.  This summer’s bearish media and investor sentiment have tipped toward out of whack with the US market’s price action.  Foremost in this regard was Sentimentrader‘s AIM model, which we reviewed as over bearish last weekend in NFTRH 356.

When prices stop declining and the rally comes from whatever bottom is ahead it could be a strong one, much like how the precious metals have bounced hard out of a hugely over bearish sentiment backdrop, as anticipated and expected.

I have already added a couple bull items against two US market short positions (added a short on a leveraged NDX bull fund to an existing SPY short).  These are items I bought for my own reasons and that I think have good potential should the market not fall apart.  If it appears we are going to get the type of sentiment wash out that happened in October a good post-summer, post-September trade could shape up.

NFTRH 356 noted the Housing sector before this week’s hype got the trend followers all over it, blowing a would-be entry point.  There is a pullback ‘buy’ target, which I now am not so sure will be hit.  But if yields go a certain way* in this deflationary swoosh, it could be a ‘buy’ if it pulls back enough.  There should be plenty of other items coming on sale as well.

For now though, just as price ruled in favor of the bull case despite waning momentum all these months, price rules for the bear case despite improving sentiment profiles.

*  Once again in the interest of full disclosure, just yesterday I speculated about a rise in long-term interest rates in an NFTRH update.  Ehhh… wrong, at least for now.  At some point the ‘inflation trade’ is going to bounce big.