The November Inflexion

There are many ways to read market sentiment. We talked about extreme sentiment readings and their interpretation on prior occasions; too bearish or bullish readings tell us what the market is thinking. RSR readings were extremely bullish at the start of the year, when markets were topping and the readings were extreme negative last month in OCT. The month was also an anticipated bottom for us. We mentioned this in July, when we said that a potential low could still be in, it happened.
The November readings are suggesting that the bottom might have already been in place. The inflexion point between bullish and bearish percentage has already lead to a clear overlap. And a majority of readings are reversing their respective trends. The 1 month readings are more sensitive owing to the smaller time horizon under study. But the overlap between bullish and bearish series and change in trend is visible both in 1 month and 6 month sentiment numbers.
Though the absolute readings are still negative, the confidence index calculated from the market pessimism and optimism data also show an inflexion. Market overall still expect little from the next two quarters. We interpret this as positive.
The only caution challenging our otherwise positive expectations is the number of percentage bulls as a proportion of market, which is not unequivocal in its readings. This could be owing to the drop in volumes, which is a passive parameter at market bottoms. RASDAQ readings were also out of sync with the rest of the market and don’t look encouraging still.
In conclusion, sentiment inflexion, and price performance over November suggests positivity to us. And the fact that sentiment measurements are slow moving indicators, make them slow but less prone to whipsaws. Let’s see.
ORPHEUS RESEARCH AT REUTERS – UNITED KINGDOM
ORPHEUS RESEARCH AT REUTERS – USA