Dr. Bob,
I agree that sentiment readings are not always very timely. In fact I find them rarely timely except when they are at real extremes - especially when they are so on a rolling average basis (for daily readings I like 10-day averages). Absolute readings don't always say very much. Where I find sentiment readings of value is watching them 'as they respond' to the market itself. For instance, in Sept-Oct the put/call ratio became more and more favorable as the market drop proceeded. The most favorable reading of .87 came before the bottom was reached. In Sept-Oct the readings did become more a more favorable .68, but this really was neutral at best.
However, at the most favorable reading in May 2000 the improvement in the put/call ratio was ever so slight and only grudgingly did it improve. This tells me there was a great reluctance to believe the crash was significant. The reading improved only from the extreme .45 to .50, where it still stands. Anyway this is how I use sentiment readings.
I'll try not to do extreme lurking. However, the value of anything I would have to say regarding TA would be fairly nil for now. Example: There's been a lot of talk on VIX lately. So I took a look. My inexperienced eye saw no predictive value, just a concurrent value. I could learn as much by watching the market itself. I then went to whativer's post #731 and looked at the stats. The lowest reading of 8.86 12/23/93 looked like it had potential, and sure enough 1994 was pretty much of a loser year, especially for bonds. And the highest reading of 172.79 10/20/87 also, a great time to be buyer. Both these readings would help a long termer. Then I looked in on Louis Lambrecht's post at #1805. And VOILA - a real logical explanation. Certainly the lowest reading was accurate. The market was down a few percentage points in 1994 - volatility was nowhere to be seen. And at the highest point in 1987, umm - duhhh!
My point is with all this bouncing around I will be doing to make sense of the various indicators, I won't have much of value to others to comment on. I do best when I simply observe. The discussions on this Board are so good that I can always find a post with info I may need. And I do have some familiarity with some items such as Bollinger Bands and Stochastics. It will take time, but eventually TA will begin to speak to me, just as sentiment indicators do today.
As to the market I still 'feel' a bit of a drop coming in spite of others' increasing optimism. Sentiment certainly is not improving. Odd-lot short selling is dropping quite dramatically now. Specialist short-selling is still neutral at best, as you say. (BTW where do you get your readings for the Public/NYSE specialist short sales ratio? I could not come up with your figure of .80. I use the odd-lot data in the WSJ on Monday mornings). Also, the latest rally since July has not only been on low volume (NYSE), but also on decreasing volume. Vacations, certainly, but it bothers me. I also think the rally in bond prices may be coming to a temporary end as well.One final comment. Hahn23's theory - It's probably too early for his big-drop idea to pan out. Your TA does not support it. Sentiment does, but it's not insistent. This is an election year, with a possible Presidential honeymoon for a few months. But next year? Quite possibly, especially if speculation continues unchecked as the put/call ratio indicates.
But this all remains to be seen. Am really looking forward to your articles on DO RE ME FA (oops, sorry) TA FA MA PA.
Kleht |
