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SENTIMENT JOURNAL: Panic Buying?
By Frederic Ruffy, Optionetics.com 8/29/2003 2:30:00 PM
Sentiment Data: While stocks made reasonable progress during the latest week of trading, there is growing evidence of a new sense of fear among investors—a fear of being left out or missing the next rally. We have noted here for several weeks now that bullish sentiment has become quite high relative to the past. For example, the surveys of newsletter writers from Investors Intelligence now show that 56% of those surveyed are bullish and only 19% are bearish. Similarly, the American Association of Individual Investors reports that, of those surveyed, 56.7% are bullish compared to only 22.7%. Overall, a number of indicators [including the CBOE Volatility Index ($VIX), Bollinger’s Put Volume Indicator (PVI), the Trader’s Index ($TRIN) and others mentioned in previous weeks) suggest that bullish sentiment has become rather high.
While bullish sentiment has been high for several weeks, now there are signs that investors have not only turned bullish, but there is a growing sense of fear about missing the next stock market rally. That is, we may be approaching a phase that is the opposite of capitulation, which is a period of time when investors sell stock out of fear or disgust and at almost any price. The opposite can also happen. Investors become so worried about missing the next rally (or getting caught holding short positions), that they chase stocks higher at almost any price.
What evidence do we have that this is happening? NYSE TICK ($TICK, which measures upticks minus downticks on the New York Stock Exchange. In the latest week, it produced a series of extreme readings that indicate aggressive buying into market rallies. TICK approached its 52-week high when it hit +1,449 Tuesday. In addition, the indicator hit a high of +1,227 Wednesday, +1,329 Thursday, and +1,155 Friday. In addition, during more than one trading session this week, there were multiple +1,000 readings from TICK this week. The frequency of these extreme positive readings from this indicator is relatively rare. And, so, it is perhaps evidence that, not only are investors bullish, but many may have entered into a panic-buying mode.
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