Interpreting Sentiment Indicators
The
Broad Market Outlook:
Sonkin’s Retreat
Peter’s Take: I’m down
with the flu and only offer this wonderful extract from a Barron’s
interview with Paul D. Sonkin, whose two funds are up 38% and 60%, respectively.
(The rest of the newsletter is pure David Aloyan.)
A: “When
stocks are cheap we buy them and when stocks are expensive we sell them. Now,
there just aren’t a lot of cheap stocks. Our largest position is cash. In one
fund, we have 53% cash, and in the other about 46%. We are just not seeing a
lot of stuff to buy.â€
Q: What is your outlook for the markets?
A: I don’t see how they can continue going up. I just can’t
see it. It is a valuation call. The question I ask is: Where is the incremental
buyer going to come from? You would have to have a lot more money flowing into
the markets in order for it to go up a lot more.
David’s
Take: All
three major indices finished the week in the red, as called for last week. Prices
of the major indices are beginning show signs of topping and rolling over, with
the high flying “tech†sectors leading the way down. The divergences
in momentum and volume vs. the previous upward price action (that we have been
pointing out throughout this rally), is finally revealing itself in terms of
lower prices over the past two weeks. Our sentiment indicators show little change
(high level of bullishness\low bearishness) despite back-to-back weeks of declining
prices. This can be interpreted to show that the masses remain optimistic and
complacent—