Owner: Zens Market Insights URL:http://zentrader13.blogspot.com/ Join Date: Fri, 24 Nov 2006 21:03:28 -0600 Rating:0 Site Description: Using stock market sentiment to gain a trading edge. Stock market forecasts and market timing for Nasdaq and QQQQ based on proprietary sentiment analysis. Site statistics:Click here
Fading the Fund Managers 1970-01-01 00:59:59 Just a few more thoughts on the intermediate-term sentiment backdrop based on one of my favorite indicators, The Merrill Lynch Fund Managers
Survey. This is one of those "soft" indicators that can't be easily quantified but still offers a great deal of insight on the overall sentiment backdrop.Prior to the surge over the last 2 weeks, this year's high water mark for the NDX/QQQQ was made on January 12th. And what did the Fund Managers Survey say at that time?..."Investors Gung-Ho as U.S. Rate Risks Recede NEW YORK and LONDON, January 17, 2006 — Investors are celebrating what they see as the end of the U.S. Fed's rate-hike cycle with a headlong rush into equities, according to Merrill Lynch's Survey of Fund Managers for January. Compared with two months ago, cash levels have fallen from 4.3 percent to 3.5 percent, investment time horizons have lengthened and investors are increasingly taking on above-normal levels of risk."Fast forward to this year's low for the NDX/QQQQ and what Read more:Fading
Lowrisk Poll Rains On My Parade. 1970-01-01 00:59:59 Lowrisk.com poll just released shows a very big jump in Bulls vs. Bears. I calculate a Bull Ratio from the numbers which is simply Bulls/(Bulls+Bears). This week it is registering a very high 62% Bull Ratio. For comparison, last weeks lowrisk.com poll showed only a 33% Bull Ratio, so this is quite a sea change.Looking back over recent poll data, the last 2 readings this high were seen on October 16th (68%) which resulted in the Nasdaq rally stalling out and going into a sideways consolidation for a little over 2 weeks, and April 30th (62%) which directly preceeded the May highs and was followed a very nasty spill as we all no doubt remember.So, which outcome to expect this time? Well, given the current intermediate-term backdrop which is still constructive to the bullish case, there appears to be little chance of a sell-off anywhere close to the magnitude of what we got in May-July. However, as noted in this weekends outlook, I have been on the lookout for a short-term top in the comin Read more:Parade
Skepticism Fueling Rally? 1970-01-01 00:59:59 The article linked below is an interesting read and confirms what I am also seeing in my sentiment work, namely that this rally still seems to have too many doubters...http://usmarket.seekingalpha.com/article/20943 Read more:Rally
Merger Monday, Plus No Joy in Trader Nation 1970-01-01 00:59:59 Just a quick note this morning.I count about $40 Billion in cash buyouts this Monday
morning. That is another $40 Billion of supply of stock taken off the market which is supposed to be bullish from a strictly supply and demand perpective per Charles Biderman and his methodology. From a sentiment perspective I would consider this a sign that the "smart money" still sees stocks as undervalued.Meanwhile, I see no joy in Trader
Nation this weekend as the Blogger Poll still shows only 23% Bulls, and the Guess the Dow contest shows only 31% looking for a higher weekly close on the Dow this week. They are a little more bullish over at Traders-Talk at 48% bulls. But all in all certainly not the kind of bullishness that one would expect to see at even a short-term top. So I expect we're going to be making higher highs in the week ahead. Read more:Merger
Welcome to Zen's Market Insights 1970-01-01 00:59:59 "Over 70% of people trading less than 1 year consider themselves good traders. However, 95% of those same traders were losing money. And over 90% within 1 year of starting to trade will quit trading out of disgust or loss of money or both..." - ArbtradingWelcome
to the inaugural post here at my new blog. The purpose of this blog is to share my stock market forecasts which are primarily based on my read of current market sentiment. More specifically, I do my best to try to identify the prevailing sentiment of the 95% of losing traders noted above, which are primarily comprised of small retail amateur traders or "dumb money", and then I do the opposite of what they do.Why such a major emphasis on sentiment instead of fundamentals, news, technical analysis, etc?... Simple, because it is my experience in 25 years of learning to be a better trader, that the ONLY consistent edge comes from exploiting the behavioral inefficiencies of the average amateur trader who relies heavily on his/her em Read more:Zen
, Market
, Insights
Where Are We Now and How Did We Get Here? 1970-01-01 00:59:59 Now for my current outlook on the market...But first a little background. My personal market timing strategy is primarily geared to intermediate-term swing trading (ie. catching multi-week to multi-month trends) in growth stocks and/or Nasdaq Index futures.Back in early August of this year. My sentiment work was literally screaming BUY BUY BUY! in regard to the Nasdaq. At the time the Nasdaq Composite and the NDX (Nasdaq 100 Index) which also trades as the ETF symbol QQQQ was just 2-3% above it's July low and pessimism in Trader Nation (credit to Gary Smith who coined that phrase) was running rampant. Many may be familiar with some bold forecasts that I made at that time on the www.traders-talk.com message board. For those who don't remember here is a sample of what I posted:8/8/06 "BEEP BEEP BEEP, That's the sound of Zen backing up the truck"8/9/06 "TRAINED TO FADE, Time to Change the Locks?Seems like an eternity now that you could safely short into every ST overbought condition wi
When It Rains It Pours 1970-01-01 00:59:59 As I mentioned in my previous blog entry below, the lowrisk.com poll released tonight rained on my bullish parade. Now with the latest column from Hulbert it appears that the rain showers have turned into a thunderstorm.http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B8E4DB6BC%2D5ED4%2D438A%2D8D47%2D64BEB2D05729%7D&dist=rss&siteid=mktwI am now on high alert for that short-term top, and the 5% Nasdaq correction that I expect to follow.
Beyond Sentiment 1970-01-01 00:59:59 Just a point of clarification on how I trade. Sentiment
is my primary tool, BUT it is not a standalone. Sentiment gives me the set-up for a trade, but does not trigger the actual trade. Once I have a buy or sell set-up from my sentiment work, I then need to see confirming price action in order to trigger the entry into the long or short position. This explains what I meant in my last blog entry when I said that I was on "high alert" for a short-term top, it means that I am watching very closely now for adverse price action that would trigger the exit from long positions that I have held from the August low.
New Features 1970-01-01 00:59:59 As promised I am adding two new features to my blog entries, Zen's Market Barometer and Zen's Mock Portfolio.The Market Barometer is made up of various inputs, mostly sentiment based, but also inlcludes a heavy weighting for price action (trend strength). The Barometer will be a number from -10 to +10, with -10 being maximum bearish and +10 being maximum bullish. The Mock Portfolio will trade QQQQ based on the Barometer readings. The Mock Portfolio position in QQQQ will be 20% multiplied by the Barometer reading. For example, if the Barometer reading is +3 the Mock Portfolio would be 60% long QQQQ (20% times +3). And conversely if the Barometer reading is -3 then the Mock Portfolio would be 60% short QQQQ. As you can see, if the absolute value of the Barometer reading is greater than 5 then the Mock Portfolio will trade with leverage as the position size will be greater than 100% (5 times 20%).So with that explanation, let's get to the current numbers.As of the market close on 11/22
Somebody Still Thinks Stocks Are Cheap 1970-01-01 00:59:59 Yet another big cash buyout bid today from a private equity firm. Remember back at the top of the Nasdaq Bubble when these same private equity firms were taking companies public via a flurry of IPO's? They were the smart money then as they cashed in at the top. Now they are doing the opposite and taking public companies private in a flurry of cash buyouts. Is there any reason to think they aren't the smart money now?...Meanwhile Trader Nation is busy complaining about this "manipulated" rally (sigh). I guess when you forecast THE TOP day after day and you are just plain wrong, the easy way to rationalize it is to complain that the Fed is artificially propping the market up. My warning to you is to avoid this type of faulty and dangerous thought process as it can be very hazardous to your wealth. Read more:Somebody
, Stocks
, Cheap
Turkey Day Sentiment Roundup 1970-01-01 00:59:59 Hope everyone had a relaxing and enjoyable Thanksgiving Day. I am going to try and fight through my food induced comatose state to give a rundown on a plethora of sentiment data points that became available in the last 2 days, and then I will give my interpretation of what this data is indicating.On Wednesday we got the latest numbers from Investor's Intelligence on newsletter writers' sentiment. As one might expect given the continued market rally the Bulls increased to 58.5% and the Bears dropped to 22.7%, for a Bull/Bear Ratio of 2.62. While readings this high have marked tops in the past, most intermediate-term tops have seen Bull/Bear Ratios above 3.0, and in the most recent historical instance where the II figures were rebounding from a Bull/Bear Ratio below 1.0, like our current situation, the Bull/Bear Ratio actually rose above 3.5. That high water mark occurred in June 2003 and only produced a sideways consolidation into August 2003 before that marked surged ahead for anothe Read more:Turkey
, Sentiment
, Turkey Day
Happy Thanksgiving! 1970-01-01 00:59:59 Well, seasonality worked like a charm today and we got a decent rally day for the Nasdaq...I would like to wish all of my readers a HappyThanksgiving
. And I will be back with you before the market opens on Friday with some new and exciting additons to the blog. I will be adding a new feature called Zen's Market Barometer which will score the intermediate-term market climate on a scale of -10 (max bearish) to +10 (max bullish). This will be an easy way for readers to gauge my take on the market's prospects looking out over the next 3-6 weeks. I will also be adding a mock portfolio so that readers can track my current trading position.Thanks for reading.
Adding It Up 1970-01-01 00:59:59 No new developments on the sentiment front today. My expectation continues to be that we are near a short-term top and we should expect a 5% correction for the Nasdaq by mid-December. That expectation is based primarily on the warning signals being given by the COT data, Insider Selling, and the recent poll data courtesy of lowrisk and Hulbert.There are some starkly contradicting data points this week though, such as the Blogger Poll and Guess the Dow from Tickersense that show a heavy plurality of bears. Also, my proprietary options sentiment indicator (see post from Sunday) remains stuck in the neutral zone, and just about every multi-week pullback of any importance since 2002 has been preceeded by this indicator making a trip into the sell zone.So, I have to hold out the possibilty of one more sharp rally to get all the sentiment ducks in a row, and if seasonality has any merit then the next 2 days would be the odds on play for when we might see just such a rally.
BCA Says US Stocks to Outperform 1970-01-01 00:59:59 You may remember my post last night which pointed out the persistent outflows from domestic equity funds. During this same time fund flows into foreign stocks have remained relatively robust. But, while retail investors continue to shun US stocks in favor of foreign stocks, the latest commentary from BCA Research says US stocks should outperform their European counterparts. I have found BCA to be one of the most accurate investment research outfits over the years and I usually pay close attention to their forecasts. They also happened to be one of the few advisory services that remained steadfastly and correctly bullish at the Summer lows this year. Read more:Stocks
Goldilocks Redux? 1970-01-01 00:59:59 One of my readers commented about the Alan Abelson's piece in this week's Barron's which pointed out a surge in the use of the term "Goldilocks" in the financial media. Then I noticed that this same story was mentioned over at The Big Picture. I found this to be very intriguing from a market sentiment standpoint and worthy of some further research.
Given how such a "Goldilocks" optimism would Read more:Redux
What Market Are They Watching? 1970-01-01 00:59:59 The latest numbers from the weekly AAII (American Institute of Individual Investors) shows and even split of 42% Bulls and 42% Bears. This is a notable 11% increase in bears from last week's 31% Bears, and is the largest percentage of bears since the first week of October. This is an unusually high number of bears considering that this past week was an up week for the Nasdaq and a flat week of Read more:Market
, Watching
The "Rodney Dangerfield" Bull Market 1970-01-01 00:59:59 I'm sure all of you remember the late comedian Rodney
Dangerfield whose catch phrase was "I don't get no respect". Well it seems that this latest rally phase of the bull market that began for the broader market in July (and in June for the S&P and Dow) has something in common with the late comedian, it "don't get no respect" either.
Aside from the AAII sentiment numbers mentioned below, and the Read more:Market
Market Barometer and Portfolio Update for 11/27/06... 1970-01-01 00:59:59 As of the market close on 11/22/06 the current values are:
Zen's Market
Barometer = +6
Model Portfolio
Position = 120% Long QQQQ
The market barometer improved at Friday's close from the prior day's reading of +5 primarily due to a short-term overbought condition being worked off. Any additional mild intraday pullback (.5% to 1%) on Monday would likely cause the Barometer to further improve to Read more:Update
Weekend Sentiment Roundup 1970-01-01 00:59:59 A couple new data points the sentiment front this weekend:
TT weekly poll: 44% Bull, 56% Bear
SMS Sentiment
Report (Nasdaq): 70% Bull, 18% Bear, 12% Neutral
Normally we also get a "Guess the Dow" from Tickersense over the weekend, but I guess Birinyi and crew took a long Thanksgiving day weekend away from their computers. Too bad as this has been one of my favorite sentiment indicators lately. Read more:Weekend
UBS Poll 1970-01-01 00:59:59 UBS Investor Optimism Poll for Novemer came in at a reading
of 93, the highest reading since January of this year. So,
that adds yet another to the list of sentiment indicators
supporting the "pullback" scenario.
Pullback Underway 1970-01-01 00:59:59 That short-term top I thought was likely this week appears to have arrived a few days ahead of schedule. NDX has pulled back about 2.5% from Friday's intraday high to today intraday low. That is half of the maximum pullback risk of 5% that I had mentioned earlier. Now we just have to watch how sentiment reacts. If the bears all come out of their caves then we should be looking at a short sharp Read more:Underway
Barometer at +7, But I'm Spooked. 1970-01-01 00:59:59 My market barometer has improved to +7, calling for a 140%
long QQQQ position, BUT I'm not adding to longs because
quite frankly this mornings UBS poll has me spooked.
Just a Heads Up 1970-01-01 00:59:59 The strength of today's sell-off in terms of extremely negative breadth and heavy volume is going to show up as a distribution day barring a miraculous comeback. That will most certainly lead to a deterioration of my Market Barometer at the close. It just remains to be seen by how much. So, I am not adding any longs here, and will likely be lightening up on longs tomorrow per changes in the Read more:Heads
Market Barometer and Portfolio Update for 11/28/06... 1970-01-01 00:59:59 As of the market close on 11/27/06 the current values are:
Zen's Market
Barometer = +5 (Scale of -10 to +10)
Model Portfolio
Position = 100% Long QQQQ
Monday's broad based drubbing took it's took on the strength of trend components of my market barometer. If we we had just gotten a mild sell-off Monday the barometer would have improved to a +7 (140% long) as I noted in my early morning Read more:Update
Lowrisk Poll 1970-01-01 00:59:59 27% Bulls
38% Bears
35% Neutral
These guys are really a bi-polar bunch as last weeks heavy plurality of bulls has now turned to a decent majority of bears. However, the current Bull Ratio (Bull/Bull+Bear) of 42% is not yet at bottoming levels, so not much support for the market from a sentiment standpoint coming from this poll, but at least the bulls didn't increase so it's a start.
A couple
Market Update for 11/29/06 1970-01-01 00:59:59 As of the market close on 11/28/06 the current values are:
Zen's Market
Barometer = +5 (Scale of -10 to +10)
Model Portfolio Position = 100% Long QQQQ
No changes to the market barometer with today's uneventful trading. It was however a nice respite from yesterday's manic (or should I say panic) Monday.
On the sentiment front, today's options data was fairly supportive but my proprietary Read more:Update
Market Update for 11/29/06 1970-01-01 00:59:59 As of the market close on 11/28/06 the current values are:
Zen's Market
Barometer = +5 (Scale of -10 to +10)
Model Portfolio Position = 100% Long QQQQ
No changes to the market barometer with today's uneventful trading. It was however a nice respite from yesterday's manic (or should I say panic) Monday. On the sentiment front, today's options data was fairly supportive but my proprietary options Read more:Update
Rydex and Odd Lots 1970-01-01 00:59:59 Odd lot short selling was still fairly elevated Tuesday, and that is supportive of further bounce Wednesday. Rydex data was pretty neutral. Futures are pointing higher in the pre-market so we'll get a gap open higher if it holds up. Investor's Intelligence poll is released today. I will post the results when I get them.
URGENT ALERT! Reports of the Bull's Demise... 1970-01-01 00:59:59 It's seems that reports of the Bull Market's demise have been greatly exaggerated... at least in the Blogosphere.
I showed you the chart of the number of occurrences of the phrase "Bull Market" in Blogs courtesy of Blogpulse. It got even more interesting yesterday, because there were ZERO occurrences of the phrase "bull market", the last time we saw zero occurrences of this phrase was on August Read more:Demise
Market Update for 11/30/06 1970-01-01 00:59:59 As of the market close 11/29/06:
Zen's Market
Barometer = +5 (scale of -10 to +10)
Model Portfolio = 100% Long QQQQ
No change in my market barometer today. A nice broad rally but a little lacking in volume.
On the sentiment front we the weekly Investor's Intelligence poll released today, but the numbers were little changed from last week at 57.5% Bulls and 22.3% Bears. Some seem to worry that Read more:Update
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