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24/7
Sentiment Journal: Searching for Safety In...Google? Frederic Ruffy, Optionetics.com
November 2, 2007
Market Data—Past 7 Days
Thursday
(11/01)
Wednesday
(10/31)
Tuesday
(10/30)
Monday
(10/29)
Friday
(10/26)
Thursday
(10/25)
Wednesday
(10/24)
DJ Industrial
Average
13,567.87
-362.14
13,930.01
+137.54
13,792.47
-77.79
13,870.26
+63.56
13,806.70
+134.78
13,671.92
-3.33
13,675.25
-.98
Total Volume (000s)
1,740,000
1,543,000
1,218,000
1,214,000
1,402,000
1,601,000
1,572,000
NYSE Up Volume
87,000
1,207,000
379,000
770,000
1,156,000
759,000
595,000
NYSE Down Vol.
1,617,000
325,000
826,000
425,000
234,000
823,000
951,000
NYSE Advancing
460
2,415
1,231
1,883
2,425
1,592
1,220
NYSE Declining
2,848
887
2,050
1,373
845
1,687
2,069
NYSE New Highs
77
269
128
295
256
141
73
NYSE New Lows
166
60
66
49
60
106
136
Nasdaq
Composite
2,794.83
-64.29
2,859.12
+42.41
2,816.71
-.73
2,817.44
+13.25
2,804.19
+53.33
2,750.86
-23.90
2,774.76
-24.50
Total Volume (000s)
2,534,000
2,505,000
2,140,000
2,024,000
2,553,000
2,701,000
2,752,000
Naz. Up Volume
379,000
1,847,000
937,000
1,252,000
1,738,000
670,000
598,000
Naz. Down Vol.
2,119,000
629,000
1,172,000
719,000
780,000
2,005,000
2,134,000
Naz. Advancing
574
1,996
1,124
1,498
1,973
1,227
976
Naz. Declining
2,470
1,017
1,826
1,478
1,006
1,742
1,992
Nasdaq New Highs
76
121
101
159
121
93
49
Nasdaq New Lows
211
97
99
101
113
147
152
Market Internals: Stocks moved in and out of positive territory during the first three trading sessions this week, but then volatility spiked and the market caved in to another round of aggressive selling pressure. On Thursday, the Dow Jones Industrial Average ($INDU) suffered a 362-point loss. After a brief rally attempt Friday morning, the industrial average slipped below 13,500 in early action, which represents a weekly loss of approximately 300 points. The NASDAQ (COMPQ) held up better than the Dow. It was down less than 10 points heading into Friday’s trading session. The NASDAQ fell 8 points in early trading Friday.
Trading activity picked up as the week progressed. The high volume on the New York Stock Exchange [NYSE] was on Thursday, when turnover topped 1.7 billion shares. However, very little of that activity represented buying, as up volume trailed down volume by a margin of more than 18-to-1! Advancers trailed decliners 6-to-1. Meanwhile, the NYSE New High New Low Index [NHNL], which was near +200 last Friday, fell to -89 on Thursday (with 77 stocks setting new 52-week highs and 166 falling to new 52-week lows.) A similar somber tale was told on the NASDAQ Thursday.
Sentiment Indicators: The sell-off Thursday and early Friday is part of a longer-term trend that has developed over the past few months. Although the major averages were able to hold steady and move higher last week, the tape didn’t confirm the move. As we noted in last week’s installment of Sentiment Journal, “…selling pressure still exists and therefore the burden of proof is on the bulls.”
While the technical action of the market remains uninspiring, the sentiment data raises some questions as well. For example, on Thursday morning when the Dow began its latest decline, not all components of the industrial average were under water. In fact, Microsoft (MSFT), Intel (INTC), and Hewlett Packard (HPQ) were higher. Google (GOOG), which is not a component of the Dow, was also strong. After making a run above $700.00 Wednesday, shares were once again heading higher and hit a high of $713.72 before the selling pressure in the broader market picked up. GOOG ended Thursday with a $3.79 loss. Nevertheless, in terms of market value, Google would now rank among the top five stocks with in the Dow Jones Industrial Average.
The strength in the tech stocks Thursday morning occurred amid weakness in financials and housing. Investors were rotating out of sectors that are at risk due to the housing slump and the credit market debacle. In a sense, this move is really a “flight to safety”. In other words, the risk aversion is giving a lift to technology shares and explains the NASDAQ’s outperformance during the latest week of trading. Unfortunately, this type of action is not consistent with market-basing levels of bearish sentiment or pessimism. In other words, when the “flight to safety” is moving into shares of Google, an Internet name that is already up 52.7% on the year, there is chance that some of the extreme levels of bullishness and complacency that set the stage for the latest stock market decline still remain in the system. It might take some more time for it to be thoroughly washed out.
Some of the longer-term indicators are also more consistent with high levels of bullish rather than bearish sentiment. For example, the International Securities Exchange’s [ISE] Sentiment Index rose to 191 on Monday and its highest levels since May 7. A reading of 191 indicates that 1.91 calls were purchased for every put on the International Securities Exchange [ISE], which is today’s largest exchange for trading equity options. Therefore, traders were leaning heavily on the bullish side of trade early this week. Meanwhile, the latest survey from the American Association of Individual Investors shows that bulls out number bears (44.71% vs. 36.47%). Finally, none of the other indicators covered here (the CBOE put-to-call ratio, the Trader’s Index, Bollinger’s Put Volume Indicator [PVI], etc.) have produced any noteworthy readings to suggest that pessimism, fear, or bearishness has reached an extreme during the latest decline. Consequently, from a contrary view of the markets, it might take further losses and more negativity to form the foundation for the next major market bottom.
Sentiment Indicators—Past 7 Days
OPTIONS
Thursday
(11/01)
Wednesday
(10/31)
Tuesday
(10/30)
Monday
(10/29)
Friday
(10/26)
Thursday
(10/25)
Wednesday
(10/24)
Puts
2,226,686
1,828,390
1,822,132
1,603,512
1,809,635
1,890,002
2,164,689
Calls
2,294,265
2,379,550
1,579,626
1,738,738
2,199,233
1,733,830
2,189,848
Index Puts
1,236,578
1,084,109
909,516
843,456
976,201
981,969
976,987
Index Calls
837,860
713,129
465,317
409,786
628,261
546,128
1,348,656
Index P/C Ratio
1.48
1.52
1.95
2.06
1.55
1.80
0.72
Total P/C Ratio
0.97
0.77
1.15
0.92
0.82
1.09
0.99
VIX
23.21
+4.68
18.53
-2.54
21.07
+1.20
19.87
+.31
19.56
-1.61
21.17
+.37
20.80
+.39
VXN
26.26
+3.15
23.11
-3.25
26.36
+.53
25.83
+.82
25.01
-.76
25.77
+.97
24.80
+.67
TICK
-878
+1,069
+484
+91
+404
+949
+441
TRIN
2.86
.74
1.30
.77
.58
1.02
.93
CBOE PVI
1.07
.89
.85
.74
.83
.88
.98
ISEE
144
113
151
191
159
149
125
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