Looks and smells like bear-market rally

George25

Commentary: Contrarians believe Oct. 4 lows will be broken

By Mark Hulbert, MarketWatch
http://www.marketwatch.com/story ... ?link=home_carousel

CHAPEL HILL, N.C. (MarketWatch) — If it looks like a bear-market rally, and smells like a bear-market rally, then ... ?

It’s been exactly one month since the S&P 500 /quotes/zigman/3870025 SPX -0.63%  dipped into official bear-market territory. In the wake of the 17% rally since the Oct. 4 intraday low, advisers have been falling over themselves in retreating from the bearish camp and jumping back on the bullish bandwagon.


/quotes/zigman/3870025
SPX 1,253.23, -7.92, -0.63%

S&P 500’s downs and ups
1,3001,2001,1001,000ASON

That kind of behavior suggests that what we’re seeing is a bear-market rally.

I noted this disturbing sentiment trend one week ago, on the day of what so far has been the high for the month-old rally. Unfortunately, developments on the sentiment front since then paint an even more disturbing picture. ( Read my Oct. 28 column, entitled “Wall of worry gives way to slope of hope” )

Consider the average recommended equity exposure level among a subset of the short-term stock-market timers tracked by the Hulbert Financial Digest (as measured by the Hulbert Stock Newsletter Sentiment Index, or HSNSI). Even though the stock market is lower today than where it stood one week ago, this average has continued to grow.

This suggests a stubbornly held optimism on the part of the average market timer, which is a dangerous condition, according to contrarian analysis.

Click to Play  After recent bottom, are we back in a bull market?Sentiment characteristics of the rally over the last 30 days suggest a bear-market rally, not a new bull market, according to Mark Hulbert, who says the missing ingredient is skepticism.

The HSNSI is now 51 percentage points higher than where it stood a month ago. To put that in context, consider that over the first month of the last six bull markets, the HSNSI never grew by that much. In fact, the average increase in this sentiment index over each of those six bull markets’ first month was just 19.9 percentage points.

These disturbing sentiment trends are even more evident among those market timers who focus on the Nasdaq market. That market is quite susceptible to changes in investor mood and is therefore a particularly sensitive barometer of sentiment.

According to the Hulbert Financial Digest, the average recommended exposure levels among these timers is now 106 percentage points higher than where it stood a month ago. This is 12 percentage points higher than the week-ago level, even though the Nasdaq Composite Index /quotes/zigman/123127 COMP -0.44%  is lower today than then.

Is there any way for the market to escape the bearish conclusion to which contrarian analysis leads? Advisors would have to beat a quick retreat in coming sessions which, while possible, appears unlikely.

The unfortunate conclusion is that the Oct. 4 lows are likely to be broken.

Click here to learn more about the Hulbert Financial Digest.
/quotes/zigman/3870025   Add SPX to portfolio SPX S&P 500 Index 1,253.23 -7.92 -0.63% Volume: 0.00Nov. 4, 2011  
/quotes/zigman/123127   Add COMP to portfolio COMP NASDAQ Composite Index 2,686.15 -11.82 -0.44% Volume: 0.00Nov. 4, 2011  
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.

oldpigwang

回复 George25 的帖子

Agree.