Winning

By: Erik Swarts | Mon, Apr 11, 2011
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As we spring from the financial armageddon that was 2008, market sentiment has been swinging as wildly as Charlie Sheen's public persona. One week the sky is falling in Europe - the next it's a Fed induced panacea a trader would be foolish to ignore. And yet throughout the tumult and bipolar emotional spasms that have become as commonplace as a Charlie Sheen meltdown, the market continues to demonstrate all the characteristics and innuendo we have come to understand is Winning.

I find myself asking a few basic questions.

Namely, what can we make out of market sentiment these days, and does it need to be reframed within a broader context to glean any worthwhile perspective, and;

Could market sentiment be far more balanced today than it currently represents, because it has become less of a binary reflection of the market and more of a summation of interests?

Anecdotally, you could look at the trajectory of Zero Hedge's popularity within the investor zeitgeist as a testament to the underlying skepticism towards this market. Being a curious fellow, I have checked their estimated market value from time to time (based only on daily pageview analytics) and found it doubles every few months. At the end of 2009 the site was estimated to be worth a little over $100K - a meteoric rise in of itself for a new market site. Today, it's approaching $1 million.


Google Trends - Zero Hedge

This rise has taken place solely on the backs of skeptical investors that have embraced the bearish dogma Zero Hedge propagates on a daily basis. This is even more impressive considering the market has rebuffed much of their market strategies and perspectives (*with the strong exception to the precious metals sector) over the past two years. You could say the Google Trend chart for Zero Hedge expresses both the market's literal Wall of Worry - and the double meaning that defines a bear today - I'm bearish towards equities with a big *caveat.

If the Investor Intelligence survey of the previous week found only 15.7% of advisors were bearish, and yet the majority of those advisors were still riding the strongest market sector, that just happens to be the bearish safehaven of gold and silver - isn't it misrepresenting the underlying market sentiment?

Considering this has been a rising tide lifts and drowns all asset classes (i.e. commodities, stocks & bonds), should traders simply ignore the previous historical analogs for these data series, or should there be an aggregate sentiment indicator that represents the true market character we find today?

I believe that these weekly market sentiment figures, when applied to the broader indexes, are about as worthwhile as interpreting the monthly BLS employment reports. They typically are not that useful - but everyone still squawks about them and finds their predetermined expectations within the data slices.

With that said, the widely held contrarian perspective towards these sentiment surveys is now overlapping my own expectations for the market in the short to intermediate time frames. I just arrived at those conclusions through different means.

 


 

Erik Swarts

Author: Erik Swarts

Erik Swarts
Market Anthropology

Although I am an active trader, I have always taken a broad perspective when approaching the markets. I respect the Big Picture and attempt to place each piece of information within its appropriate context and timeframe. I have found that without this approach, there is very little understanding of ones expectations in the market and an endless potential for risk.

I am not a stock picker - but trade the broader market itself in varying timeframes. I want to know which way the prevailing wind is blowing, where the doldrums can be expected and where the shoals will likely rise. I will not claim to know which vessel is the fastest or most comfortable for passage - but I can read the charts and know the risks.

I am not a salesperson for the market and its many wares. I observe it, contextualize its moving parts - both visible and discrete - and interpret.

I practice Market Anthropology - Welcome to my notes.

Erik Swarts is not a registered investment advisor. Under no circumstances should any content be used or interpreted as a recommendation for any investment, trade or approach to the markets. Trading and investing can be hazardous to your wealth. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This is strictly for educational and informational purposes only. All opinions expressed by Mr. Swarts are subject to change without notice, and the reader should always obtain current information and perform their own due diligence before making any investment or trading decision.

Copyright © 2011-2014 Erik Swarts

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