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By March 22, 2016 0 Comments

My Polls Keep Embracing the Bear

The Market Let me start with a short note on the Twitter poll I asked (begged?) you to participate in last week. I inadvertently forgot to sum it up for you on Thursday evening. It was about 60%-40% in favor of the month (and therefore the quarter) closing under 2050. I have been doing these Twitter polls since November and prior to 2016 each and every time the poll was skewed toward the over, no matter what number I opted for. Folks were steadfastly bullish, even if the degree was different. But since January I have done three such polls and each time folks have taken the under. So you can see that in 2015 the majority was incorrect and so far in 2016 the majority have been incorrect. Considering the S&P closed on Friday at 2049 and there are about eight trading days left in the month/quarter we’ll know if things have changed. I do have some other sentiment indicators that show some restraint as well. I have noted the Consensus Bulls here for several weeks. Recall at the lows these folks were a mere 44% bullish (quite low for them). They are now at 54%. So they are now coming around, but notice by this point in the October rally they were at 65% already.

The Market Vane bulls are also showing a similar sense of restraint with their reading at 54% as well. I grant you both of these surveys were taken before the FOMC Meeting this past Wednesday, so perhaps they would have been higher given the action we saw in the latter part of the week. Either way, I would categorize sentiment as now grudgingly accepting of the rally, but not giddy. What I do find interesting in terms of sentiment is the put/call ratio for ETFs. We have now seen two consecutive days with this ratio under 100%. That is atypical for this indicator. The only times it has gone more than two consecutive days as been as we head into year end. In 2015 it happened (four in a row) and in 2012 it happened as well. As you might recall in both cases it was not right to be loading up on calls relative to puts both those times. Remember a low put/call ratio means there are more calls being bought relative to puts (buying calls is a bet on a move higher), so if we want to be contrary then we’d look for the market to make these folks wrong and would then look for a down move. Since 2012 we have only had two consecutive days under 100% for the put/call ratio for ETFs twice. In 2012 you can see it marked a high in the market for about six weeks. We fell about 10% before heading ever higher. In 2015 you can see we took a quick 1.5% off the S&P and up we went again. If I had a gun to my head I’d go with the down-then-up scenario in 2015. I am not looking for it to play out exactly like that — the indicators are in a different place — but I can see the market accommodating the dip folks, sucking in more shorts and then rallying again. It’s been the theme of this market, hasn’t it?

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