Market Outlook and Sentiment

Regular readers of "A Dash" know that we have decided to reveal our weekly vote in the TickerSense Blogger Sentiment Poll.  Our intermediate outlook is based upon Vince Castelli’s technically based model, which has outperformed the broad market for several years.

When the model moved from bullish to neutral, we told readers that it was subject to fluctuations at the turning points.  Our own investors have done a little better than the published result because the model flipped for a few days and caught a short-term move.  We are not going to do a public update of every change, but we will continue to report the weekly signal.  The intermediate outlook remained neutral last week, but there may be a change in our vote in the coming week’s poll.


Several astute pundits have taken positions on sentiment.

Bill Rempel has dropped out of the TickerSense poll, and suggests that traders should fade the result.  Bill astutely notes the irony in these polls.  If people answer honestly, the trader interpretation is to take a contrarian stance.  Are the answers honest?  As he correctly observes, most do not reveal their positions, but a cursory analysis shows that these are mostly bears.  Bill’s departure increases the contrarian interpretation!

Doug Kass and Gary D. Smith have an ongoing debate over sentiment on’s Real Money site (subscription required).  There is a lively discussion over which indicator is the best measure.

Barry Ritholtz has some excellent observations.  He points out that individual investors are still out of the market, but the pros have been bullish.

Scott Rothbort has some interesting observations on RealMoney concerning increasing interest in stocks among individual investors.  Perhaps he will soon publish some of this on his own blog.

Our Take

Regular readers know that we view sentiment via the Fed Model.  When there is a significant negative disparity between expected earnings and interest rates, it shows overall negative sentiment about earnings prospects.  That is what we have now.  In the  bubble era, the sentiment was reversed.

For individual investors, the outlook remains bullish.

For traders, we are — for the moment – on a neutral signal.

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  • John Sweda July 19, 2007  

    I am also neutral here. When the market is really overheated, you get a lot of small individuals (who should not be in stocks) jumping in, trying to make a quick buck, pushing the market up. The action now consists of private equity and merger activity ahead of the 2008 elections, pushing the market up. This is much bigger money, serious money, and this activity will slow down as the election draws nearer. Roughly 2 out of 3 mergers turn out to be unsuccessful.

  • Jeff Miller July 19, 2007  

    John —
    Thanks for stopping by and commenting. I am curious about what you are seeing. My own experience is that individual investors are still pretty much on the sidelines. A lot of boomers need a regular investment plan. I am also surprised about the 2008 elections. It looks like the Dems are in front, but the market does not care yet.
    Please feel free to expand upon your thinking and tell us what you see.