Mark Hulbert was interviewed on CNBC and asked to give his opinion on whether the market was close to bottoming. Hulbert mentioned the Aden sisters, who have a great track record, advised subscribers of their Aden Forecast to sell all equities; both foreign and domestic.
Mark Hulbert finds that investor sentiment, as reported in the popular surveys (Investors Intelligence and AAII), indicates investors are at their most cautious since last fall.
Hulbert comments on his own analysis of investment newsletter asset allocation which shows a different picture of investor bullishness.
Awhile back Carlos X. Alexandre wrote a nice article featured at Seeking Alpha regarding the impressive results of a simple market timing strategy utilizing the 200 day moving average.
Alexandre also commented on Richard Russell’s throwing in of the towel on market timing. Russell, the founder of Dow Theory Letters, happens to be one of the most famous market timers in the history of the markets.
Alexandre latched onto a Mark Hulbert revelation that Russell had decided to settle on investing the majority of his assets under management in a mutual fund that has a static allocation to a number of uncorrelated asset classes. Alexandre demonstrates the long term ineffectiveness of a non-correlated asset class mutual fund mentioned by Hulbert; the Permanent Portfolio Fund (PRPFX).
Alexandre’s point is that many so-called financial gurus and asset managers hide behind complex “strategies” that are in many instances inferior to simpler market timing techniques.
Mark Hulbert tracks newsletter performance and he also has created a few sentiment indexes. One Hulbert has designed is suggesting a cautious market stance (for those who like to trade):
Consider the average recommended equity exposure among a subset of short-term stock market timers, who focus on NASDAQ stocks (as measured by the Hulbert NASDAQ Newsletter Sentiment Index, or HNNSI). This is a useful sentiment measure on which to focus, since the NASDAQ market is one in which sentiment plays a particularly large role (remember the Internet bubble?)
The HNNSI currently stands at 73.3%, which is disturbingly high. The only other occasions this year when this sentiment benchmark got any higher were early November and late April/early May. Both occasions turned out to accompany stock market highs — and in the earlier case came immediately before the infamous Flash Crash and severe May-June correction.
Hulbert also points out a couple of additional sentiment indexes that are indicating possible trouble ahead:
One is the weekly survey of investment advisers compiled by Investors Intelligence. Its latest reading, from earlier this week, shows a slightly higher level of bulls today than existed at the April market high. In fact, Investors Intelligence is reporting that the current level of bullishness is the highest since December 2007. Of course, that earlier period of excessive optimism came just as the 2002-2007 bull market was rolling over into a severe bear market.
Equally a source of concern is the Crowd Sentiment Poll compiled by Ned Davis Research, the quantitative research firm. To be sure, one of the components of this Poll is the Investors Intelligence survey, so this result is not particularly surprising. But the Poll reflects a number of other sentiment measures as well. And it currently stands at 69%, well into the “Excessive Bullishness” territory, and above the Poll’s average level at prior market tops.
Mark Hulbert analyzes the sentiment of a subset of stock market newsletter writers by tracking their recommended stock market allocation. A dramatic shift in sentiment signals near-term caution:
Consider the average recommended equity exposure among a subset of short-term stock market timers tracked by the Hulbert Financial Digest (as represented by the Hulbert Stock Newsletter Sentiment Index, or HSNSI). It currently stands at 60.8%, up from just 25.2% three trading sessions ago.
Hulbert comments further on how his may play out at the source link directly below.
The market has been volatile over the past several weeks and a couple of not-so-often seen events occurred. One was the “death cross” which occurred earlier this month when the 50-day moving average (MA) of the S&P 500 fell below its 200-day MA. Subsequent to that we saw the Dow climb 7 days in a row.
Mark Hulbert, at Marketwatch, studied the aftermath of these events. His findings on the death cross were that over the past two decades it hasn’t portended very much at all about future market performance, although it does indicate future relative weakness in the 85 times it has occurred over the past 114 years. The speculation is that, with the advent of computer technology, too many investors began following moving average systems which made them unreliable.
Surprisingly, Hulbert’s look at consecutive up days (specifically 6 in a row) showed the market tended to be stronger than normal for the next week and month.
So say statisticians according to Mark Hulbert. Given how difficult it is to forecast the stock market’s short-term direction at any time, much less now, you might imagine that it is even more difficult to forecast the market’s direction over longer periods of time. Ironically, however, that may not be the case. Statisticians tell us [...]
Abnormal Returns looks at various interpretations of value from the perspective of different quoted sources. Jeff Miller (Dash of Insight): The current yield on forward earnings is 7.85%, a rate close to that offered at the market lows of February to March of 2009…By this measure, the market is just as cheap as it was [...]
Mark Hulbert, who tracks newsletter sentiment, says, ”we’re seeing one of the fastest trips from the bull side to the bear side that I’ve seen in years.” The average newsletter writer is only recommending a 20% exposure to equities. Dan Sullivan, who has one of the best records amongst the newsletter writers, recently advised his [...]
Mark Hulbert reports on an indicator which gave a bullish signal April 5th: What I have in mind is a rare buy signal that was generated a couple of weeks ago by a trend-following indicator with a good long-term record. Prior to the recent buy signal, there had been only 12 of them since 1967. [...]
Dan Sullivan Advises Investors Go to 100% Cash
May 23, 2010Mark Hulbert, who tracks newsletter sentiment, says, ”we’re seeing one of the fastest trips from the bull side to the bear side that I’ve seen in years.” The average newsletter writer is only recommending a 20% exposure to equities. Dan Sullivan, who has one of the best records amongst the newsletter writers, recently advised his [...]