Category Archives: Sentiment-Psychology

Over Loved, Over Emotional, Over Bullish

We have a bunch of economic data on tap for the market to get emotional over. Jerk to the left, jerk to the right; as if any one period’s data is anything other than a reason to game a market running on pure momentum.

And then we have Huey, Dooey, Louie and even a couple more popping out to dump even more signals on the market as we go full frontal Jawbone today:

“In addition, five Fed officials will be speaking on Thursday. From Milan, we’ll hear from Philadelphia Fed President Charles Plosser — his second speech in Europe this week — and Boston Fed President Eric Rosengren, who is a voting Federal Open Market Committee member. Dallas Fed President Richard Fisher, Fed. Gov. Sarah Bloom Raskin and San Francisco Fed President John Williams are also on tap to deliver speeches.”

It should be interesting if nothing else. Beyond any one day’s knee jerking, there is this to consider (graphics courtesy of Sentimentrader.com):

Smart Money vs. Dumb Money (current)

The ‘smart vs. dumb money’ structure is exactly opposite to what it was one year ago when we used this picture in support of a bullish stance:

Smart Money vs. Dumb Money (1 year ago)

And people just love stocks over bonds, almost as if there is a Great Rotation taking place or something. Ha ha ha…

Stocks to Bonds ratio

The bulls are right and those that have been bulls for a year have been right for a year; both of them. In full disclosure, I was bullish as appropriate last spring and summer and then proceeded to not nearly maximize that fact. That’s show biz.

Now I am bearish. I hope to maximize that stance. There is a case for higher stock prices later in 2013 or early 2014. But for now, this pig is over loved just as it was over hated a year ago.

Market Sentiment to be the Decider After All?

Something just did not square as the S&P 500 came to the long-standing target range of 1550-1590. That was the tendency of the ‘dumb’ money to jerk bearish every time the market took a 1% or 2% dump.

Enter bubble dynamics at the behest of an aggressive and out of control Federal Reserve.

To put it in non-technical terms, here is how one might interpret the mind of the Fed, if only the Fed’s members were a) honest enough or b) able to clear the dull haze of bureaucratic myopia in order to see what they are actually doing…

“Get your ass up there you pig. We know that our only way out of this is to inflate an asset bubble, making the rich ever richer and the poor more disenfranchised and dependent upon the system. We are playing with printed and keystroked [funny] munny after all and so far that munny is doing exactly as we wish in trying to indicate a wealth effect in the stock market.”

Well finally, the public is buying it and upside blow off dynamics can now be anticipated.

Courtesy of Sentimentrader.com

We have been following this and other market sentiment data every week and now the dots are finally starting to flee the middle (neutral) ground they have held for too long now. Finally, people are getting too bullish a market that is too far above certain moving averages and making readily definable patterns that provide measured targets.

I do believe big changes could be coming in May or June for our dear FrankenMarket.

Cyprus Play by Play…

Cypress = BULLISH, stop looking at it. How many times do we have to see this setup? Market pretends to be scared about XYZ event. Market drops, a world full casino patrons obsess on the breaking news play by tawdry play and then voila… more bullish fuel is baked into the market in the form of constructive sentiment.

This market will eventually top out of its own bloat. But this Cyprus stuff is adding to a bull continuation case the longer it is obsessed over as if it is anything more than a flash point. Really, have human players become programmed or is this mostly black boxes and algorithms at work?

A Contrarian Stroll Through Recent History

Opening disclaimer: I am not trotting out the past to show what a great contrarian I am. Truth is, I have not come close to fully taking advantage of the bull calls last spring and summer. Given what has gone on in the precious metals, it has been all I could do to manage risk to a break even.

That out of the way, this article was posted last May when it was very hard to be a bull:

Dumb Money Sold in May and Went Away

“Led by near suicidal sentiment among the gold ‘community’, the broad markets recently embarked on a southerly course as well, culminating with ‘dumb money’ sentiment at very bearish levels in technology, energy, financials, industrials and on out to commodities. The last time sentiment was in such a compelling (contrarian) bullish structure was after the damage inflicted upon markets by last summer’s acute phase of the euro crisis.”

Flipping the above on its head today…

Led by near pervasive and still-growing bullish sentiment, the broad market is continuing upward on its course and is culminating with ‘dumb money’ sentiment and momentum being set to over bullish levels. The last time there was such consensus on the economy and the stock market may well have been in 2000.

“Think about the election year pattern, think about how wildly bearish sentiment has become, think about the market’s need to shake out the dumb money prior to rising and most of all think about how policy makers need to be perceived as doers of good; as part of a solution, as opposed to chronic purveyors of an inflationary regime that has been in force most intensely since 2000.”

Policy makers are not only thought of as part of the solution, they are revered far and wide in a reverential and growing rabid manner. This is the ultimate bull rationalization and it is the underpinning of confidence (great word) in today’s market.

In July this was written:

Dumb Money Sold in May?

“There are still articles showing up in the MSM talking about what a good idea it was to ‘sell in May and go away’. But the truth of the S&P 500 chart begs to differ. Yes, it has been a nerve wracking couple of months, but as of Friday the SPX is above where all but the most astute of the ‘sell in May’ contingent got out.”

There are now articles showing up in the MSM talking about the Great Rotation, the Dow’s all-time highs and a new era for the US economy, which has weathered the Euro crisis and myriad domestic issues as it continues to strengthen. All the talk of inflationary policy makers has gone the way of Goldilocks.

“I do not love this market by any means. But I am still long (and profitable) several positions that were bought down near the lows (Lithium, Rare Earths, a tactical global fund, a global bond fund) and others in technology and energy added since.”

Well do you remember how hard it was to be bullish last summer? Now it is easy to be bullish. Too damned easy.

“Last week as SPX tested but did not fail support at the EMA 200, I held, white knuckles and all. This market may yet prove that the dumb money sold in May; especially if the rally ends up going on long enough to drag them back in again before any coming change to bearish again.”

The dumb money is holding without a care in the world.

Another post from August:

“Dumb Money Sold in May and Went Away”

“But even if the market tanks tomorrow and stays tanked, the dumb money sold in May. Sentiment structures said so then and ‘price’ says so now. The big question is whether or not the dumb money will buy back in setting up the opposite scenario to May.”

One opposite scenario, comin’ up? [edit] No comment on timing, see new post.

If you want a newsletter that works very hard to be right about these big macro turns, then give a Notes From the Rabbit Hole subscription a try. My personal trading can range from very good to poor. I am human. But the themes carried forward in the newsletter are usually nicely in alignment with the macro picture, from a contrarian’s point of view that is.

A Look at Sentiment & NFTRH 220 Wrap Up

The following is an excerpt from NFTRH 220, published on January 6:

Sentiment (Data courtesy of Sentimentrader.com)

Well what do you know? Most US stock sectors are becoming unhealthy from a sentiment perspective (above), as the commercial hedgers have gone quite bearish (below). Here is the graph from NFTRH 218:

…and a short-term sentiment timing graphic:

Sentiment Bottom Line

Note that Jason’s comments are in contrast to the current NFTRH view that markets could remain strong into spring and then go bearish. A valid question is how long can markets continue higher while being sponsored by dumb, performance-chasing money? The answer is often “longer than you might expect”. But we should respect the idea that US markets are in a poor risk vs. reward stance now.

Referring back to the top graphic on page 21, there seems to be one lonely sector – one red headed stepchild – that is out of sorts with the whole process of a degrading risk vs. reward setup. While it is painful in the short-term, it is certainly a positive with respect to the fact that there are phases when the precious metals go contrary to the broad markets.

Hulbert’s latest data available to Sentimetrader shows a -6.3% for gold newsletter writers. Anecdotally, a friend advises that Lance Lewis has stated that Hulbert’s HGNSI was actually down to -12.5% on January 3. The Sentimentrader data is delayed. This would mean that gold newsletter sentiment is as bad as it was during the summer when prices were 100 bucks lower. That is a bullish divergence, contrarian-wise.

The bottom line is that the sentiment data backs up NFTRH’s stance of a bullish risk vs. reward on the precious metals (again, this does not mean lower prices cannot come about in the short-term), a bearish risk vs. reward on the broad markets and for sure a bullish risk vs. reward view of the precious metals in relation to the broad markets.

Wrap Up

Please remember that a perma precious metals bull did not write that last paragraph above. Yes, the PM’s are in a secular bull market and I am big picture bullish. But when the shorter-term risk is high in the precious metals NFTRH has consistently noted it. When risk vs. reward is good in the broad markets we note it. If at any point it looks like I may be serving up dogma, please contact me and let me know about it.

I try very hard to keep personal views as a rational monetary system and market watcher subordinated to what I see actually happening in the markets on a week-to-week, month-to-month basis. But I have eyes, and as such I see inflation being promoted once again. The work done to date pretty much comes down to the Adjusted Money Supply as being the final leg to be kicked out from under the table that holds Ben Bernanke’s carefully arranged place settings. Rising money supply would bring on the next inflationary phase and most probably the next leg up in the precious metals bull.

But there is another scenario that most gold and commodity promoters will not mention. What if rising Treasury yields stop the economy dead in its tracks and actually trigger a real deflation, as money simply seizes up and stops moving? What if the money supply does not rise? What if, just maybe the weakness in the precious metals is a forecast to this condition?

This question is not meant to scare people because I expect the opposite. We are only 1 week into 2013 after all, with Operation Twist barely in the rear view mirror. But various indicators in today’s report say it is important for the precious metals to begin to out perform other markets soon in line with favorable sentiment and risk vs. reward profiles.

We will continue to manage the process in-week with interim updates.

Biiwii.com, Twitter, Free eLetter, Notes From the Rabbit Hole

Junk to Investment Grade Says Bull Lives

As if we needed something beyond today’s price action across the broad markets, this indicator is repairing itself. The red arrows represent the ongoing weak signal Junk vs. I.G. had been giving. Now, is today just short covering in the markets? I have my doubts. It’s going on for sure, but if HYG/LQD gets above the moving averages it’s probably not a good idea to fight the bull impulse because the will to speculate will be kicking in by some good and pissed off bulls.

A Few Tidbits From Sentimentrader

From the estimable sentimentrader.com, whose premium service I find very valuable in navigating this mess:

Biotech, energy, financials, gold bugs, housing, tech and utilities are good ‘n scared. I am not sure what data they use, but I am amazed at how quickly the gold bugs went from dangerously over bullish to this… epic under bullish. Individual indicators like public opinion and Rydex fund flows did not look over bearish on the precious metals, however (and there is you’ll recall, the CEF premium to NAV issue). Maybe there is a time lag in reporting in play. I’m not sure.

See? Hulbert’s gold newsletter writers are a little too peppy still.

Hulbert’s tech newsletter writers got good and bearish though.

And then there is the long-term T bond, rising per a previous post (TLT to 131) toward target amid really peppy sentiment among newsletter writers. Treasuries could be a good short when they hit upside target with sentiment registering over bullish.

Finally, a look at the ‘smart’ vs. ‘dumb’ money. It’s not as contrarian bullish as it was in May, but the dumb money is finally puking out.

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