Here We Go Again

Once again, we see the word "unexpectedly" being used in conjunction with a monthly move in consumer sentiment/housing/jobs reports.

I'm not sure what it would take to banish this word as it pertains to short term variance in noise-laden indexes. The article features this nugget re: Consumer Sentiment: "Economists surveyed by Bloomberg News had predicted the index would rise to 75 this April (preliminary)from 73.6 in March (final). The Index was at 73.6 in February, 74.4 in January, and 72.5 in December."

In order for something to be unexpected, there needs to be a sufficient degree of expectation.

Is that warranted for the monthly number on consumer sentiment?

You might as well argue how many Angels on the Head of a Pin or How many licks to get to the center of a Tootsie Pop
.
Statistical navel-gazing of this sort isn't merely silly as I mentioned here, it's counterproductive. It draws people into a pattern-seeking mode and into a destructively short-term focus that causes bad decisions.

Do yourself a favor. Resist it.


-Dr. Frank

Negative Market Expectations at a High

If expectations drive stocks, then this graph should be of interest. As opposed to the MarketPsych Fear Index, this is a plot of the relative percent of negative expectations (subtracting out positive expectations, such as for market "recovery" or "rebound"). It looks like investors are expecting very bad news going forward. As you can see, investor expectations were relatively more positive in June and July 2007. The relative percentage is displayed on the left y-axis. A negative value actually indicates a positive balance of investor expectations.

As in our other graphs, this is a candlestick chart (in this case of the QQQQ - Nasdaq 100 proxy). The brown line is a 30-day exponential moving average of the balance of negative-positive expectations. It is derived from the results of a linguistic analysis of the financial press. Essentially, you are seeing the frequency of reported negative expectations attributed to investors.
Does this ugly graph mean it's a good time to invest? Well, we haven't crunched the numbers on this one yet, but we will soon....