What Wall Street Experts Are Saying This Week: Stubborn Pessimism

In this edition of What Wall Street Experts Are Saying This Week, I review several recent measures of analyst sentiment. The “stubborn pessimism” still lingering after 10 weeks of positive stock market action should provide plenty of fuel for a continued upmove.

Chloe Lutts, Editor of Dick Davis Investment Digest and Dick Davis Dividend Digest

Chloe Lutts is the editor of Dick Davis Investment Digest and Dick Davis Dividend Digest, and the third generation of the Lutts family to join the family business. For each Digest, Chloe reads hundreds of investment newsletters to select the strongest ideas for her readers. Prior to joining the Dick Davis Digests, Chloe was a financial reporter for Debtwire, a division of the Financial Times, covering fixed income, and before that, she reported on global debt markets for Institutional Investor. She also has previous experience at Cabot, writing about growing momentum stocks for Cabot Top Ten Trader and high-potential small companies for Cabot Small-Cap Confidential. She holds a B.A. in International Relations from Brown University, and also studied in Beijing and Paris.

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>> Hi. I’m Chloe Lutts, editor of the Dick Davis Investment Digest and Dividend Digest and this is What Wall Street Experts Are Saying This Week for February 3rd, 2012. The market has finally taken a breather over the last few days, hopefully consolidating January’s gains without losing too much ground. The most interesting thing I’m seeing today is the persistent pessimism, some advisers that are still playing too. According to Investors Intelligence to its latest surveys, the percentage of Bearish Advisors has been within half a percent of 30 percent of advisors for 10 weeks.

As John Gray, editor of Investors Intelligence, wrote on Thursday, “Those are stubborn advisors as the S&P 500 rally more than 13 percent in that period. You can see in this chart from Investors Intelligence that the percentage of Bearish Advisors has really refused to budge even as the market has sort. Of course, that stubbornness is an excellent constraint sign for the market. If the rally does continue, all those advisors who are refusing to get on board today will have to get on board later, provide and sustain a little of buying power.”

One example of those advisors is Richard Rhodes, editor of The Rhodes Report, who, looking at the market’s action in January, expects another up leg but has very little confidence in it, calling it a week leg hire. He wrote on Thursday morning, “Technically speaking, the S&P 500 remains above long-term support at the 45 memo at 11/90 which is critical given a delineate bull and bear market. But thus far, the 2012 rally has seen very little weakness and appears to be ready to embark upon another leg hire, a week leg hire to be sure towards the 1350 to 1370 zone. At that point, selling pressure should increase rather substantially.”

Also among the rally doubters is Dan Ferris, writing for Porter Stansberry S&A Digest late Wednesday. He began by citing a different sentiment survey, this one from the American Association of Individual Investors or AAII, he wrote, “Individual Investors are Bullish. According to the AAII sentiment survey, 48.5 percent of respondents think stocks will rise over the next 6 months. You think more professionals would be like our own Jeff Clark. Jeff is suspicious of the market right now, though he admits the recent price action is undeniably Bullish. Jeff told readers in today’s S&A’s short report market update, he favors the downside right now but isn’t’ putting on any new trades today. The Investors Intelligence Survey showed a very similar bearish level to the AAII survey on 48.9 percent which is down just slightly from 58 percent last week and the week before.”

John Gray explained that how he interpreted that reading saying, “This—that is the fewest Bulls since mid-December but not a significant shift from the 51.1 percent reading that began this year. That showed the most Bulls since late April 2011 but that one started with a much higher and somewhat dangerous level of 57.3 percent. Even now, take index breakouts above last year’s highs before we achieve similar lofty levels for the Bulls. The current small change is not a negative signal and we still read to any non-Bulls expressing caution with comments that an overbought to hop is here, somewhat a correction before they get Bullish. Major market talks usually include Bulls between 55 and 60 percent.”

One of those cautious Bulls she mentions is Stephen Quickel, editor of U.S. Investment Report, who is generally optimistic. He’s about 70 percent invested but he never let the last recently urge his subscribers to take it slow, writing Wednesday, “You have to love the way the stock market has charged into 2012 after a lousy 2011. For 10 weeks, since the day after Thanksgiving, stocks have risen more or less steadily. However, it’s now time to stop, look, and listen, for what? For the tone and direction of the earnings recorded just beginning to flow for the final quarter of 2011 and for whatever the market itself maybe trying to tell us about where it’s headed.”

Another adviser on defense is Stephen Todd, editor of Todd Market Forecast, who switched to a short-term bearish outlook on Wednesday but isn’t totally committed. As he wrote, “Right now, the market is somewhat choppy. It can’t hold advances or declines very well. We decided to go to a short-term salary based partly on this chart. The Dell is in a resistant zone, it’s at levels that turned it back last May and July and it is over backed as measured by 4-week RSI. If it breaks out above resistance, we’ll move back to the Bullish Camp.”

Of course, not everyone is skeptical, someone is out there is supporting this rally. One of those people is Richard Schultz, editor of Fund Focus, who wrote, “We began the New Year with a very cautious approach to the marketplace. As the month progressed, we became more optimistic and were encouraged by many of the economic trends including GDP growth, employment growth, manufacturing, and even some disregard for the ongoing travails in Europe. As a result, we’ve lowered our allocation to the highest quality bonds and increased our allocation to acuity positions.” Also very Bullish are Marvin and Gerald Appel, author of Systems and Forecasts who wrote, “With our indicator’s Bullish, a new retracement should be viewed as a buying opportunity. Our client accounts are nearly fully invested.” So that’s what Wall Street experts are saying this week. I hope you join me again in 2 weeks for the next edition of What Wall Street Experts Are Saying This Week. Thanks for watching.

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