Sentiment
Divergence
A rather
flat to positive day for stocks yesterday as the C
fund gained just a penny, but the S and I funds
picked up almost a 0.50% each.
This morning's jobs report will be the initial
catalyst for stocks. The estimates are for
130K to 135K new jobs being created in May. If
the report comes in line with estimates, the market
will be pleased. Any surprises and we could
see some fireworks. Don't forget that there is
a tendency for the market to reverse a big move
caused by a surprise in the jobs report in the days
that follow. We'll call a surprise anything
20K or more away from the estimate, and a big move
is a 0.50% or more gain or loss in the S&P 500.
Today I want to talk about the sentiment
surveys. I am a big fan of watching these
surveys when they hit extreme levels. This
week's AAII Investor Sentiment Survey came in with
another unusual reading. 33% of those polled
said they were bullish, while 45% were bearish.
These are percentages you would see at market
bottoms, not at new highs. Very strange, and I
continue to believe this is the main reason stocks
are not pulling back with any authority; just minor
1% or 2% dips.
You can see below that the last pullback came when
bulls were a big 2.5 to 1 majority over the bears,
and the bottoms seem to come when the there are more
bears than bulls - just as we are seeing now.
Again, very strange and a very bullish indicator for
stocks going forward.
Chart provided courtesy of
www.decisionpoint.com
But wait! Our
TSP
Talk Sentiment Survey System has done very well
this year going against the majority and it just
gave a sell signal for next week. The system
is up 12.41% this year and now that it is on a sell
signal, we know it will be in the safety of the G
fund all next week so it will end next week up about
12.5%. This system returned 28% last year so
there has also been some past success using it.
You can see below that the sell signal is convincing
as the bulls to bears ratio came in at 3.67 to 1 for
the week of 6/04 through 6/08, with 66% being
bullish, and just 18% being bearish. This sell
signal comes after being on a buy signal for the
last three weeks.
If you are following this system, you would make an
interfund transfer this morning (Friday) before the
deadline, so that you will be 100% in the G fund for
Monday morning.
I feel better about being on the sidelines with that
data but on the other hand, there is a tendency for
these TSP Talk sentiment survey system signals to
come a week early. You can see past signals on
the
TSP
Talk Sentiment Survey System page. But
don't forget, the AAII survey is giving us a
completely different story so... good luck with
whatever you decide.
Trader Fred's
TSP Trader System
current commentary can be found on the
system
page.
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