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Mark Hulbert
March 4, 2011, 12:01 a.m. EST
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By Mark Hulbert, MarketWatch
CHAPEL HILL, N.C. (MarketWatch) "” I used to joke that on Wall Street, the long term lasted just from lunch until dinner.
Now I don't think it's a joke. The reaction times on Wall Street have become so compressed that market moves that used to take several weeks, if not months, often are now exhausted in just a couple of days.
Clearly, we're all succumbing to attention deficit disorder.
In my column on Tuesday of this week, I had hinted that reaction times appeared to have markedly shortened. Confirmation of this comes from an extensive study of my stock market and gold sentiment indices "” the Hulbert Stock Newsletter Sentiment Index (HSNSI) and the Hulbert Gold Newsletter Sentiment Index (HGNSI). The study, which focused on daily readings of those indices back to 1985, more than 25 years ago, searched for correlations between different index levels and the markets' subsequent returns. ( Read my Tuesday column.)
Prior to the last decade, for example, the strongest correlations were at the three-month horizon. Correlations with subsequent one-month performance, though statistically significant, were somewhat weaker. At the two-week horizon there was no statistically significant correlation at all.
In recent years, in contrast, the situation has reversed itself dramatically. Now there is no statistically significant correlation with the three-month horizon. And not only have correlations at the two-week horizon become statistically significant, they now even exceed those that prevail at the one-month horizon.
This compression of reaction times has been clearly on display this week in the stock and gold markets.
In my Tuesday column, for example, I reported that bullish stock market sentiment had dropped markedly over the previous several sessions, thereby reversing the bearish short-term forecast from contrarian analysis of the previous week. Now, in the wake of the biggest stock market gain in three months, one has to wonder if the bulls will come rushing back to jump on the bullish bandwagon "” once again reversing the contrarian forecast.
Gold provides an even starker illustration. I reported Wednesday morning the surprising cautiousness of gold timers in the face of bullion's new all-time high. ( Read March 2 commentary.)
Unfortunately for the gold market, this marked cautiousness lasted for less than a day after I wrote this. By Wednesday night, the HGNSI had jumped 27 percentage points "” to the highest level in more than two years. And on Thursday, as gold traders are already abundantly aware, bullion plunged by more than $21 an ounce.
Once again, one has to wonder if the bears will come rushing back to jump on the bearish bandwagon that previously supported higher gold prices.
There no doubt are many lessons we can learn about not only the investment markets in particular, but our culture in general, by this compression of reaction times. But the most immediate one is that contrarian analysis is becoming an increasingly short-term trading tool.
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.
Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD became a service of MarketWatch in April 2002. In addition to being a Senior Columnist for MarketWatch, Hulbert writes a monthly column for Barron's.com and a column on investment strategies for the Journal of the American Association of Individual Investors. A frequent guest on television and radio shows, you may have seen Hulbert on CNBC, Wall Street Week, or ABC's World News This Morning. Most recently, Dow Jones and MarketWatch launched a new weekly newsletter based on Hulbert's research, entitled Hulbert on Markets: What's Working Now.
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1:13 p.m. Today1:13 p.m. March 4, 2011
"Mark Hulbert: Sentiment increasingly a short-term tool http://on.mktw.net/f4vRdn" 1:26 a.m. EST, March 4, 2011 from MktwHulbert
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