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Mark Hulbert
Feb. 16, 2010, 12:01 a.m. EST · Recommend (2) · Post:
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British inflation may be a blip, pain is coming
By Mark Hulbert, MarketWatch
ANNANDALE, Va. (MarketWatch) -- Advisers are returning from their three-day holiday in a decidedly melancholy mood.
And that gives contrarians hope that the bull market that began last March is not yet over -- recent market weakness notwithstanding.
Consider the average recommended equity exposure among a subset of short-term stock market timers tracked by the Hulbert Financial Digest (as measured by the Hulbert Stock Newsletter Sentiment Index, or HSNSI). It stands currently at just 20.3%, down from 65.2% in early January.
A 45-percentage-point drop in the average recommended exposure level, especially in so short a period of time, suggests that by no means are we seeing the kind of stubbornly held bullishness that is a hallmark of major market tops.
On the contrary, it would appear as though the veritable "wall of worry" that bull markets like to climb remains alive and well.
Further insight into investors' current gloominess comes by comparing the HSNSI's level today with where it stood in mid October, when the Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (INDU 10,215, +116.09, +1.15%) was trading at more or less the same level as now. The HSNSI is half as high today as then.
So even though the market is just as high today as it was four months ago, advisers are far more likely than before to see the glass as half empty rather than half full.
So, once again, we see little evidence of stubbornly-held bullishness.
Other sentiment barometers are telling a similar story, by the way. Investors Intelligence, which in late December was reporting a dangerously high level of bullishness, now rates the sentiment picture as, if not outright bullish, at least close to being so.
The same goes for the sentiment survey that the American Association of Individual Investors conducts of its members visiting the organization's Web site. Those who reported that they were bullish, expressed as a percentage of those who said they were either bullish or bearish, rose to 68.2% during the last week of December. During the latest reporting week, in contrast, the comparable proportion was 46.7%.
To be sure, the usual caveats apply. Sentiment is not the only thing that makes the markets go 'round. And even when contrarian analysis gets it right, it is in forecasting where the market will be over the very short term -- shedding no insight into the market's longer-term trend.
So, for example, it might very well be that, as some of the bears are arguing, the stock market will be a lot lower in one year's time. But, if the contrarians are right, the stock market will trade higher first before heading down.
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.
- Sojourner | 7:45 a.m. Today7:45 a.m. Feb. 16, 2010
Consumers in Britain got an unpleasant taste of things to come with January's inflation surge.
12:26 p.m. Today12:26 p.m. Feb. 16, 2010 | Comments: 1
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