Tuesday - June 13, 2006
The Emotional Low
From an article at TheStreet.com comes a new term in technical analysis: the emotional bottom.
Several strategists believe an "emotional" bottom for U.S. equities has already occurred, and the stock market is struggling to break out of the doldrums. Mary Ann Bartels, technical research analyst at Merrill Lynch, believes the emotional bottom was reached last Thursday when the market sold off throughout most of the day, but rebounded sharply in the last couple of hours. Once done, however, market indices are likely to test previous highs, she says. Thursday's action "indicates an emotional day where sellers may have become exhausted and buyers are beginning to take control," she writes, adding that markets may take several weeks to build a "successful bottom."
Say What?!
Thursday’s low was not a real selling climax and not even a reversal. Yes, there were a number of hammers, piercing patterns and bullish engulfing patterns last Thursday. However, these formed with two hours of selling pressure (10-12) and four hours of buying pressure (12-16). Buying pressure fizzled on Friday and this showed just how weak the “emotional” low really was. Let’s try and leave the emotions out it – shall we.
By Arthur B. Hill - Tue 13-Jun-06 at 10:29AM in Sentiment
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Tuesday - January 31, 2006
UBS investor optimism increases for fourth straight month.
Highest Level in Year and a Half; Investors Confident about Outlook for Economic Recovery; Energy and Healthcare Top Investor Concerns for 2006.
Investor optimism has surged to a 19-month high, according to the latest UBS/Gallup Index of Investor Optimism, with investors continuing to express confidence in the performance of the U.S. stock market. Now at 93, the Index is up 14 points from last month and 59 points since September 2005. The last time the Index was this high was in June 2004, when it reached 95.
Is investor optimism unwarranted? Oil prices are high, but so are stock prices. This goes to show that investor optimism is more geared towards stocks prices than oil prices. The S&P 500 has been moving higher since October 2002 and shows no signs of stopping now. Net New Highs on the NYSE reached +440 on Monday and this is also a sign of strength, not weakness.
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By Arthur B. Hill - Tue 31-Jan-06 at 06:33AM in Sentiment
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Thursday - September 22, 2005
Remember the VIX?
And the Alamo too! There is an obscure (:~) indicator called the VIX that measures the implied volatility of S&P 500 options. Volatility is a measure of risk. High risk means high volatility and low risk means low volatility. While the S&P 500 and S&P 500 Equal Weight Index move higher, the VIX moves lower. As this chart shows, it has been trending lower for over two years and a long falling price channel has formed. The indicator found support around 11% over the last 10 months and a move above the August high would show increased volatility (more risk). This would be bearish. Further strength above 18% would break the long downtrend and usher in a period of rising volatility. This would likely coincide with a prolonged decline in stocks.
By Arthur B. Hill - Thu 22-Sep-05 at 11:04AM in Sentiment
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Thursday - August 11, 2005
Bears Chase Bulls
This chart, courtesy of the VTO Report, shows bullish/bearish advisor sentiment. Bullish sentiment remains strong and above 56%, but still below the Dec-04 high around 64%. What is interesting is that bearish sentiment AND bullish sentiment increased in July (white boxes). The number of skeptics grew in July.
By Arthur B. Hill - Thu 11-Aug-05 at 08:44AM in Sentiment
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Friday - April 22, 2005
Remember the VIX?
Remember the VIX? Analysts went on for months about how the low VIX indicated complacency and that this was a bearish sign. The VIX represents the implied volatility for a basket of OEX puts and calls. The higher the implied volatility, the more the risk and the higher the option price. Low volatility may indeed indicate complacency, but this could also be interpreted as confidence. Problems arise when confidence becomes over confidence. The downtrend in the VIX has been slow and deliberate. This suggest quiet confidence, not over confidence.
The VIX has trended lower since Oct-02, which just happens to coincide with the bottom in the Nasdaq and S&P 100. We should not expect a surge in selling pressure as long as VIX is trending lower and confidence is slowly growing.
There are early signs of a trend change, but nothing has been confirmed. VIX broke above the upper trendline of the long falling price channel last week, but moved back below this week. The move also broke above the January high. We saw a similar move in Mar-04 and this ultimately failed. For the trend to change and to expect a sustainable surge in the urge to sell, I would look for VIX to move above key resistance at 20. When this happens, the 2 1/2 year downtrend will be unequivocally broken and change will be afoot. And not a moment sooner.
By Arthur B. Hill - Fri 22-Apr-05 at 03:06PM in Sentiment
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Thursday - April 07, 2005
Advisor Sentiment
Mark Hulbert of CBS MarketWatch reports there is “no rah-rah for this rally”. The Hulbert Stock Newsletter Sentiment Index finished at –4.1% on Thursday and the letters are “net short the stock market”. Hulbert goes on to say that the –4.1% reading alone is not a big deal. What is a big deal is the fact that it moved from –1% to –4.1% when the market rallied over the last four days. Bullish sentiment usually rises on market advances and this decline shows skepticism. The chart from VTOReport.com shows that bullish sentiment peaked at the end of December and declined the last 3 months.
By Arthur B. Hill - Thu 07-Apr-05 at 03:48PM in Sentiment
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