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Mark Hulbert Archives | Email alerts
Jan. 18, 2012, 12:01 a.m. EST
By Mark Hulbert, MarketWatch
CHAPEL HILL, N.C. (MarketWatch) "” Contrarians, being contrarian, are not getting caught up in the "it's a new bull market" fervor that is spreading through Wall Street.
And they recommend that you avoid it as well.
Consider the picture of budding enthusiasm being painted by four different sentiment measures:
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)
The well-known survey of advisory sentiment conducted by Investors Intelligence. To distill their results into a single number, I calculated a ratio of the number of outright bulls in their survey to the total number identifying themselves as outright bulls or bears.
The sentiment survey conducted by the American Association of Individual Investors (AAII). As with Investors Intelligence, I distilled their results into a single number by calculating a ratio of the number of bulls to the total number of outright bulls or bears.
The CBOE's Volatility Index /quotes/zigman/2766221 VIX -5.51% , or the VIX, for short.
I focused on how each of these sentiment benchmarks behaved over the first 106 days of prior bull markets (as defined by Ned Davis Research, the quantitative research firm). I chose 106 days since that is how long it's been since the early-October lows.
/quotes/zigman/627449 DJIA 12,605.47, +26.52, +0.21%
In the case of three out of these four sentiment measures, bullishness over the last 106 days has risen more rapidly than was the norm from past bull markets.
Take the AAII sentiment measure, for example. The proportion of respondents identifying themselves as bullish, when expressed as a percentage of those who are either outright bullish or bearish, has grown 30.6 percentage points since the October low.
The average increase over the first 106 days of past bull markets (back to 1986, when the AAII survey began) is just 10.3 percentage points, or one third as much.
Click to Play $(function () { $("#video_7BEA0167-913E-43A4-A096-3957F180EF67").click(function (e) { e.preventDefault(); MarketWatch.Video.loadAndStartVideo('7BEA0167-913E-43A4-A096-3957F180EF67', 'video_7BEA0167-913E-43A4-A096-3957F180EF67', '287', '162'); }); }); Bullish signals may indicate need to pull backStocks have rallied 20% since October lows, based on intraday levels. But investor sentiment also has gained, and that's a bad sign for contrarian investors. Mark Hulbert looks at past bull markets to glean some answers. (Photo: Getty Images)
The HSNSI and the VIX tell almost as dramatic a story.
The HSNSI has increased 61.9 percentage points since early October, versus an average of 36.5 percentage points for past bull markets (again back to the mid 1980s).
And the VIX has fallen 53.9% since its early October high, versus an average of 40.6% from past bull markets.
Only the Investors Intelligence survey is suggesting that the last three months' increase in bullishness is not out of line.
It's worrisome when 3 out of 4 sentiment measures suggest that the bulls are jumping back on the bullish bandwagon at such an above-average pace. They reinforce the picture of complacency that the sentiment data have been painting in recent weeks. ( See my Dec. 20 column. )
Does this mean that the market can't keep rising? Of course not. But it does mean that the sentiment winds will not be blowing in the bulls' sails, either at all or particularly strongly, in coming days and weeks.
Click here to learn more about the Hulbert Financial Digest.
/quotes/zigman/2766221 Add VIX to portfolio VIX CBOE Volatility Index 19.74 -1.15 -5.51% Volume: 0.00 Jan. 19, 2012 1:18p var embeddedchart1085120985Chart = new EmbeddedChart('#embeddedchart1085120985', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:VIX'); jQuery.data($('#embeddedchart1085120985').get(0), 'embeddedchart', embeddedchart1085120985Chart); //$(document).ready(function() { var storywidth = $('#mainstory').width(); var maxwidth = storywidth; $('#maincontent pre').each(function (index, value) { var thiswidth = $(value).width(); if (thiswidth > maxwidth) maxwidth = thiswidth; }); var offset = maxwidth - storywidth; if (offset > 0) { var margin = 13; var blanketwidth = $('#blanket').width(); var contentwidth = $('#maincontent').width(); $('#blanket').width(blanketwidth + offset + margin); $('#maincontent').width(contentwidth + offset + margin); $('#mainstory').width(storywidth + offset + margin); } //});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.
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About Mark Hulbert RSS News feedMark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD... Expand
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. Collapse
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