Investment Markets Info.

Damage in the stock market never ends

You'd never know we are in a powerful bull market with the hit many stocks are taking. The damage in the stock market just never ends!

Rather than talk about it, take a look at the selling in Wednesday's session (Oct. 22nd, 2014). It's just one day but it's another day of stocks undergoing heavy selling. The stocks featured here are not meaningless stocks either. These are considered, in our research, to be higher quality more significant companies. This has been going on since January 2011 when resource stocks peaked. Since then, there has been a rolling process of selling stocks.

In March, many high flying U.S. listed growth stocks were wiped out. They were big winners up until their early March peak.

Featured here are DDD, LL, VMW, ASPS and TUP. Extensive observation of stocks undergoing selling provides useable clues into the stance of investors for all stocks.

 

Daily examination of action in the stock market with what it means for a portfolio.

Investor sentiment needs more pessimism

As investors become more pessimistic, selling in the stock market intensifies. But despite a dramatic four week plunge in the stock market, investor sentiment needs to be even more pessimistic.

Investor's Intelligence Survey; not that intelligent!

The Investor's Intelligence Survey is a measure of investment newsletters. The simple survey asks if their position is bullish (optimistic) or bearish (pessimistic). Recently, the number of bulls has been declining but the number of bears has risen only slightly. In significant corrections and bear markets it is not uncommon for the number of bears to exceed bulls.

At the current time, this measure isn't even close to an extreme. In fact, the stubborn position of investors to not become more bearish is noteworthy. What will it take to rattle investors?

  Bulls

  37.8%  

  Bears

  17.3%  

The options market and how it gets it wrong.

As investors become more pessimistic they tend to buy puts in the options market. Holding puts is a strategy designed to profit from falling prices. Accordingly, the number of call options purchased diminishes due to market weakness.

As the decline in the underlying market intensifies, there has been a point historically when the number of equity puts purchased exceeds calls purchased.

You can see from the chart below that the number of puts bought nearly exceeded the number of calls (at .91 on Oct. 13, 2014). But in the last ten years, this measure has spiked to 1.20 when fear escalated. At less than 1.0, it's not quite close enough to declare fear became dominant.  

What to do when investor pessimism is extreme.

When investors are "on the same side of the fence" with their viewpoint, they have carried through with either buying or selling. When investors are in agreement, the market is at a turning point. Intuitively, this makes sense if you work through it. When investors are collectively pessimistic, or bearish, they have taken action by selling their stocks. If the selling is essentially complete, then the market has only one way to go and that is up.

Our research tracks numerous investor sentiment measures as part of an ongoing study of investor behaviours. We study the link between investor psychology to market tops and bottoms. It's part of market timing and picking the biggest winners in the stock market.

For contact; info@investorbootcamponline.com

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Commentary including ideas, historical and other market indications are not investment advice. Statistics and other data may be from other sources and may be inaccurate or incomplete. See Full Disclaimer.

The market is the news!

 

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