A SENTIMENT UPDATE TO INTERPRET HOW YOU WISH
What separates an amateur from a professional on Wall Street? The separation doesn't have anything to do with a professional designation, your pedigree, a license, years worked or people you know. It has little to do with the type of car you drive, how much hair gel you use, the type of music you listen to or the number of Gordon Gekko lines you can imitate. It has everything to do with knowledge.
There are people in their mid-20s trading six figure accounts from a one room apartment who are more advanced in thought and analysis than some fund managers. The fact that a person wakes up each morning, puts on a suit and tie, scurries out the door into a large office full of trading screens does not make that person a professional. It makes that person a corporate participant on Wall Street. A cog in the giant machine that keeps the capital markets spinning. If the overly-observant media and public would simply choose their labels better, perhaps Wall Street would have a far better reputation than it currently does.
The word professional is defined as: Having or showing great skill; expert. When a majority of retail investors who come to rely on "professionals" for advice have been burned over an extended period of time, the word professional then becomes compromised.
One of the ways I classify a true professional on Wall Street, in the classic definition of the word, is an individual who knows what method of analysis to use when. This individual realizes that the markets take advantage of those who come to believe in one form of analysis, clinging onto it regardless of market conditions. Just as the markets change continuously so does its treatment of the popular analysis used over a certain time frame.
Sentiment is one form of analysis that is constantly shifting in relationship to the markets. Whether it is the use of the VIX, various sentiment surveys, odd lots shorts, outstanding margin debt or the put/call ratios, there is no magic wand when it comes to sentiment. It is, perhaps, the most finicky form of analysis. There is no other popularized form of analysis, other than oscillators perhaps, that claim more causalities in trading and investing than blind trust in sentiment indicators. They fail constantly. They get investors into bear markets prematurely, often at the point where the final leg of the bear market is hell bent on the most severe destruction. They get traders to go short bull markets way early, just as the uptrend is entering its sweet spot.
You have to know when to ignore it. Unfortunately, there are no indicators that will tell you when its time to ignore other indicators. I wish I could post a squiggly line that just crossed over another line and tell you that when this happens, sentiment indicators will no longer work. It is not that easy. The only means of combating erroneous and disingenuous analysis is experience. You pound away at the markets every day, taking in all forms of analysis until you start developing a feel for the what, when and how of the markets.
I am updating sentiment analysis here due to requests I have received. The reason why it has been awhile since I last updated the sentiment indicators shown below is that I believe we are in a time and place where they cause more harm than good. In other words, I don't think they should be trusted here.
What leads my thinking onto this path of mistrust is the manner in which the markets have been functioning recently. I am planning on putting out an article titled, "Intention Based Market Analysis," that will go into the details of the functioning of the current markets. The short and sweet of it is that the expansion of volatility in both directions after the type of run we have had so far in 2013 leads me to believe that the intentions of the market are bent towards more weakness regardless of what any indicator will tell you.
Nevertheless, let's look at the sentiment here:
click chart to enlarge
SHORT-TERM PUT/CALL MOVING AVG ONLY
LONG-TERM PUT/CALL MOVING AVG ONLY
