Tuesday, July 3, 2012

Too much bullishness?

This morning, Mark Hulbert reported that he was seeing too much bullishness among market timers:
Consider the average recommended equity exposure among a subset of the shortest-term stock market timers tracked by the Hulbert Financial Digest (as measured by the Hulbert Stock Newsletter Sentiment Index, or HSNSI). It currently stands at 47.0%.

To put the 47.0% recommended exposure into context, Hulbert wrote:
Particularly disturbing is that the HSNSI is now higher than where it stood on May 1, when the bull market that began in March 2009 hit what so far is its highest closing level. It’s five percentage points higher, in fact, even though the Dow is more than 400 points lower today than then.
When I read commentary like that, I like to look for confirmations from other data sources - but I didn't find it. I don't know what Hulbert's sample composition is, but the July 2 Ticker Sense blogger sentiment poll, to which I am a participant (and I voted "neutral"), shows a high degree of disagreement between the bulls and bears:

There are a few explanations for this discrepancy. The sample surveys of the two polls are different, which can lead to differing conclusions. Another explanation could be a difference in methodology. Hulbert measures the average recommended exposure, while the Ticker Sense poll just asks about direction, i.e. if you are bullish or bearish. The bullish timers polled by Hulbert could be extremely bullish, while the bearish timers were only cautiously bearish. Such a result would skew HSNSI and pull the average up far more than "normally" warranted.

Any way I look at it, this doesn't look like a case of excessive bullishness to me.

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.
None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.

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