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EDITOR: DICK STERN

+100%

CIO: BRAD LAMENSDORF

75%

50%

25%

0%

-25%

-50%

s
The charts and graphs presented in LMTRs newsletter are not produced by LMTR. The interpretation
of the charts and graphs is only the opinion of LMTR and does not reflect the associated firms opinions.

Bearish Sentiment Indicates


Likelihood of a Fall Rally, But Anticipate
a Bear Market after the Bounce
The third quarter correction has knocked sentiment numbers down to oversold
readings, indicating an upward market bounce at least through the autumn. However,
technical damage created during the correction has very negative implications over
the long run. This issue of LMTR will focus heavily on sentiment indicators, but we will
also spend some time reviewing troublesome long-term indicators.

Source: S&P Dow Jones Indices

Too Few Bears


Excessive Optimism

16225
12692
9928
7766
6075
4752
3717
2908
2274
1779
1392
1089
852
666
70
65
60
55
50
45
40
35
30
25
20
15
10
5
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15

2015

2014

2013

2012

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

Source: Investors Intelligence

1991

1990

1989

1988

1986

1985

1984

1983

1982

1981

1980

1979

1978

1977

1976

1975

Too Few Optimists

Source: Investors Intelligence

2011

Bullish Advisors (Two-Week Smoothing)

2010

85
80
75
70
65
60
55
50
45
40
35
30
25
20
15

Too Many Bears

2009

Bearish Advisors (Four-Week Smoothing)

2008

70
65
60
55
50
45
40
35
30
25
20
15
10
5

(S500)

Weekly Data 12/14/1973 - 10/02/2015 (Log Scale)

Dow Jones Industrial Average

1987

16225
12692
9928
7766
6075
4752
3717
2908
2274
1779
1392
1089
852
666

1974

LAMENSDORF MARKET
TIMING REPORT

OCTOBER 2015

Copyright 2015 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.

The Investors Intelligence Bulls/Bears Ratio, a poll of the sentiment of 155 newsletter writers, has
become dramatically more bullish. For more than a year the bears were stuck at about 15%, which
was a 30-year low. But during the current correction the number of bears jumped to 36%. While a
year ago the bulls were at 60%, they have now collapsed to 24%. The bulls minus bears are now at
minus 12%, which is a favorable reading.
1
W E S T P O R T, C O N N E C T I C U T
BRAD@LMTR.COM

LAMENSDORF MARKET TIMING REPORT

OCTOBER 2015

2002-07-31 to 2015-09-29 (Log Scale)

S&P 500 Composite Index

(Updated weekly on Wednesday mornings)

2,208

2,208

Extremes Generated when Sentiment Reading:


Rises above 61.5% = Extreme Optimism
Declines below 55.5% = Extreme Pessimism

1,998
1,808

Average Value Of Indicator At:


Optimistic Extremes (down arrows)= 68.4
Pessimistic Extremes (up arrows)= 46.9
Average Spread Between Extremes = 21.5

1,998
1,808

Sentiment must reverse by 10 percentage points


to signal an extreme in addition to the above
extreme levels being reached.

1,636
1,480

1,636
1,480

1,339

1,339

1,212

1,212

1,097

1,097

992
898

More than a year ago Ned Davis


Researchs Crowd Sentiment poll
registered at 73.3, one of the tools
highest positive sentiment readings in
the last 10 years. It is currently at 46.2,
which is its highest negative reading in
three years. This is bullish.

Arrows represent extremes in optimism and


pessimism. They do not represent buy and sell
signals and can only be known for certain (and
added to the chart) in hindsight.

812
735

NDR Crowd Sentiment Poll


is:

% Gain/
Annum

Above 61.5
Between 55.5 and 61.5

% of
Time

1.6

42.5

10.4

21.0

8.5

36.5

* Below 55.5

665

Source: S&P Dow Jones Indices

2003

2004

2005

2006

2007

2008

2009

73.5

70

71.9

70.5

69.6

68.1

2010

2011

Extreme Optimism (Bearish)

75.7

75

72.2
69.8

69.5

59.4

2014
73.9
71.6

70.7

73.3

45
43.8

40
35

51.3
47.6

46.6

33.9 33.9

47.2

48.2

40
38.4

37.1
32.5

30.9

50
45

40.5
38.0

75

55
53.3

50.3

46.8

42.5

Extreme Pessimism (Bullish)

665

60

49.9

49.7

735

65

63.2

55.2

51.9

812

70

68.3

54.8

50

898

2015

58.1

53.5

30

2013

73.0

70.7

62.3

60

2012

67.1

65

55

992

S&P 500 Index Gain/Annum When:


1995-12-01 to 2015-09-29

Source: Ned Davis Research, Inc.

35
2015-09-29 = 46.2

30

NDR Crowd Sentiment Poll


S574

2 067
1 946
1 833
1 726
1 626
1 531
1 442
1 358
1 279
1 204
1 134
1 068
1 006
947
892
840
791
745
702

(DAVIS134)

Daily Data 7/05/2006 - 10/02/2015 (Log Scale)

Standard and Poor's 500 Stock Index

2067
1946
1833
1726
1626
1531
1442
1358
1279
1204
1134
1068
1006
947
892
840
791
745
702

Standard and Poor's 500 Stock Index


Gain/Annum When:
Gain/
Annum

NAAIM Survey is
Above 73%
* Between 14% and 73%

Source: S&P Dow Jones Indices

1 05
1 00
95
90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
0
-5

Copyright 2015 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html For data vendor disclaimers refer to www.ndr.com/vendorinfo/

2007

2008

Below 14%

2009

2010

Source: NAAIM, Survey of Manager Sentiment http://www.naaim.org

Low Average Allocation (%) Pessimistic

2011

2012

2013

%
of Time

0. 5

33. 6

4. 3

61. 6

49. 0

2014

4. 8

2015

High Average Allocation (%) Optimistic

NAAIM member firms who are active money managers are asked
each week to provide a number which represents their overall
equity exposure at the market close on a specific day of the
week, currently Wednesdays. (Weekly Data Updated Twice a Month)

105
100
95
90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
0
-5

National Association of Active Investment Managers (NAAIM) Survey Average

Copyright 2015 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.

2
W E S T P O R T, C O N N E C T I C U T
BRAD@LMTR.COM

The National Association of Active


Investment Managers Exposure Index
averages its memberships actual
exposure to U.S. equity markets. This
is an important difference from bullish
and bearish sentiment polls. A year ago
exposure was 100% long. However after
the recent correction it has fallen to 15%
long, which is bullish.

LAMENSDORF MARKET TIMING REPORT

OCTOBER 2015

The High-Low Index seeks to provide


confirmation of a market trend by
comparing the daily number of stocks
reaching new 52-week highs with
the number reaching new 52-week
lows on a broad equity index. It is
calculated by dividing the number of
high stocks and low stocks by the total
of number trades on that day. Last
year this indicator traded at 80, which
is extremely overbought. As a result
of the recent correction, the indicator
has moved into buy territory. At one
point it dipped to 6, and it is currently
at 10.

Copyright 2015, All Rights Reserved Stockcube Research Ltd. Further distribution prohibited without prior permission.
www.investorsintelligence.com

Daily Data 7/15/1981 - 10/02/2015 (Log Scale)

S&P 500 Index


S&P 500 Index
Gain/Annum When:
Bottom Clip is

Gain/
Annum

Above 61

11. 5

53. 5

5. 0

32. 2

3. 8

14. 3

Between 36 and 61
* Below 36

90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
0
(S244A)

%
of Time

1966
1677
1431
1221
1042
889
758
647
552
471
402
343
293
250
213
182
155
132
113

2011

2006

2001

1996

1991

Source: S&P Dow Jones Indices

1986

1 966
1 677
1 431
1 221
1 042
889
758
647
552
471
402
343
293
250
213
182
155
132
113

10/02/2015 = 31.1%

Source: Ned Davis Research, Inc.

90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
0

Percent of NDR Multi-Cap Stocks Above Their 200-Day Moving Averages

Copyright 2015 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.

3
W E S T P O R T, C O N N E C T I C U T
BRAD@LMTR.COM

One of my favorite market indicators is


the percentage of stocks that are trading
higher than their 200-day moving average.
It is a simple tool that can be used in two
very different ways. The first and most
obvious use of this tool is for assessing
overbought and oversold situations. An
overbought reading occurs at levels above
80, and oversold readings occur at levels
below 30. It recently fell to 22, but it has
since inched its way back to 31. This is a
bullish signal.
This chart also has a secondary use,
pinpointing positive or negative
divergences in the marketplace. A large
negative divergence has been present
since the end of 2013. This means the
underlying market trend is much weaker
than the market indexes have been
showing.

LAMENSDORF MARKET TIMING REPORT

OCTOBER 2015

This particular chart shows that for the first time since 2009 all six major Fed regional activity surveys are in contraction,
which could suggest a weaker earnings environment for next year.

Copyright 2015, All Rights Reserved www.zerohedge.com. Further distribution prohibited without prior permission.

Despite the correction, and lower stock prices, corporate insiders have yet to show up as
buyers. According Trim Tabs Investment Research, during August and September a mere
$600 million in stock was purchased by insiders. Moreover, a single company (Seattle
Genetics) made up a third of this total. Significant bottoms occur when value has been
created. Insiders have a knack for spotting value in their own companies. The fact that
insiders have yet to show up as buyers is extremely negative.
2015 TrimTabs Investment Research. All rights reserved.

4
W E S T P O R T, C O N N E C T I C U T
BRAD@LMTR.COM

LAMENSDORF MARKET TIMING REPORT

S&P 500 Index


Gain/Annum When:
Gain
/Annum

9. 4

5. 7

83. 1

25. 6

7. 5

Between $6 and $16


$6 and Below

%
of Time

3. 1

*Price will represent 24th cheapest stock when S&P 500 has fewer than 500 members

Price of the 25th* Cheapest Stock in the S&P 500 (5th Percentile) (

Source: S&P Dow Jones Indices

) 10/02/2015 = $16.25

Excessive Speculation

2007

2002

1997

Buy Low Priced Stocks

1992

1987

1982

S264

22
20
18
16
14
12
10
8
6
4

Sell Low Priced Stocks

Speculators Fearful

1983
1721
1494
1297
1126
977
848
736
639
555
481
418
363
315
273
237
206
178
155
134
116
101
87
76
66
57

2012

Price of 25th* Cheapest


Stock in the S&P 500 is:
* Above $16

Copyright 2015 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.

20
19
18
17
16
15
14
13
12
11
10
9
8
7
(DAVIS52)

Weekly Data 5/30/1980 - 10/02/2015 (Log Scale)

Standard & Poor's 500 Stock Index


S&P 500 Gain/Annum When:
Indicator Is:

Gain/
Annum

* Above 16.4

2. 1

%
of Time
34. 9

Between 12.9 and 16.4

10. 6

40. 6

12.9 and Below

14. 4

24. 6

19.70

Source: Value Line

Data moved ahead one week to reflect reporting lag.

Value Line Price/Earnings Ratio

2087
1756
1478
1244
1047
881
742
624
526
442
372
313
264
222
187
157
132
111
94

2015

2014

2013

2012

2011

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

2010

10/02/2015 = 1951.4

Source: S&P Dow Jones Indices

1982

2087
1756
1478
1244
1047
881
742
624
526
442
372
313
264
222
187
157
132
111
94

1981

The first chart displays the average


price of the 25 cheapest stocks in
the S&P500 index, and it is utilized
as a technical tool. The second
chart displays the price multiples of
equities, which is a fundamentally
oriented tool. While the indicators
look at different data, they are both
flashing warning signs. Both were
in overbought territory before the
correction. While they have pulled in
some, these two indicators remain in
overbought territory. This is a huge
long-term concern.

22
20
18
16
14
12
10
8
6
4

Daily Data 1/20/1972 - 10/02/2015 (Log Scale)

S&P 500 Index vs. Price of 25th* Cheapest Stock in the S&P 500 Index

1977

1983
1721
1494
1297
1126
977
848
736
639
555
481
418
363
315
273
237
206
178
155
134
116
101
87
76
66
57

OCTOBER 2015

10/02/2015 = 17.2

20
19
18
17
16
15
14
13
12
11
10
9
8
7

Copyright 2015 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.

5
W E S T P O R T, C O N N E C T I C U T
BRAD@LMTR.COM

LAMENSDORF MARKET TIMING REPORT

CONCLUSION:
The Good, the Bad and Possibly the Very Ugly
The months of November through April are typically viewed as seasonally favorable for
the stock market. During this time frame endowments, pensions, etc. receive annual
inflows, which are then put to work through asset allocation models. Since sentiment
is also low, and large corporate buybacks are still occurring, the market is set up for a
fourth quarter rally. I predict that if a bounce does materialize, another more serious
correction will occur next year. Last week paying subscribers of LMTR were alerted to
cover their short positions. We were 50% short and made 10% on the position when we
covered it.

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DISCLAIMER
Lamensdorf Market Timing Report is a publication intended to give analytical research
to the investment community. Lamensdorf Market Timing Report is not rendering
investment advice based on investment portfolios and is not registered as an
investment advisor in any jurisdiction. Information included in this report is derived
from many sources believed to be reliable but no representation is made that it is
accurate or complete, or that errors, if discovered, will be corrected. The authors of
this report have not audited the financial statements of the companies discussed
and do not represent that they are serving as independent public accountants with
respect to them. They have not audited the statements and therefore do not express
an opinion on them. The authors have also not conducted a thorough review of the
financial statements as defined by standards established by the AICPA.
This report is not intended, and shall not constitute, and nothing herein should be
construed as, an offer to sell or a solicitation of an offer to buy any securities referred
to in this report, or a buy or sell recommendation. Rather, this research is
intended to identify issues portfolio managers should be aware of for them to assess
their own opinion of positive or negative potential.
The LMTR newsletter is NOT affiliated with any ETFs Nor any investment Advisors.

W E S T P O R T, C O N N E C T I C U T
BRAD@LMTR.COM
Copyright 2015 Lamensdorf Market Timing Report.

OCTOBER 2015

BIO

Brad Lamensdorf, a seasoned money


manager and market strategist, is the
CIO of The Lamensdorf Market Timing
Report, a newsletter designed to
help investors improve performance
via market timing by assessing the
environment of the stock market using
a variety of technical, fundamental
and sentiment-oriented tools from
powerful independent research firms.
Many investors mechanically enter
and depart the market without a true
game plan. Studies have shown that
retail investors, in particular, are very
poor market timers, tending to invest
at or near market peaks and sell at or
near market lows. The newsletter is
designed to provide risk parameters for
both professional and retail investors
around the short-term stock market
environment, giving subscribers better
insight about when to allocate assets
into or out of the equity markets.
Lamensdorf, a frequent guest
commentator and analyst on major
business networks including CNBC, CNN
and Fox Business News, also serves
as a Portfolio Manager and Principal
of Ranger Alternative Management
LP, a sub-advisor to the Advisor
Shares Ranger Equity Bear Exchange
Traded Fund (NYSE: HDGE). In this
role, he conducts top-down technical
evaluations of broader market liquidity,
sentiment and breadth to help identify
short and intermediate-term market
trends, manage exposure and mitigate
risk. HDGE was launched in 2011 and
is the first and sole actively managed,
short-only ETF in existence.
Lamensdorf, also has managed
investment portfolios for the Hughes
family and was principal of Tarpon
Partners, managing a long/short fund
that was up more than 200% gross over
six years. Earlier in his career, he was as
an equity trader/market strategist for
Taylor and Company, the Bass brothers
trading arm, co-managing a short-only
strategy in a derivative format with
national exposure. He also served as
the in-house market timing strategist
for the entire internal and external
network of Bass managers.