Market-timers' caution a bullish sign to contrarians
MARK HULBERT
Wall of skepticism
Commentary:
By Mark Hulbert, MarketWatch
Last update: 12:01 a.m. EDT April 21, 2008

ANNANDALE, Va. (MarketWatch) -- You'd have thought that Friday would have brought stock market bulls out of the woodwork.
Chart of $INDU
The Dow Jones Industrial Average ($INDU:
Dow Jones Industrial Average

$INDU 12,756.87, -92.49, -0.7%) gained 229 points, topping off one of the better weeks for the market in some time and, at least according to some analysts, triggering a Dow Theory buy signal. More about the Dow Theory
But the market's strength didn't have that expected impact.
On the contrary, the editors of stock market-timing newsletters ended Friday no more bullish than they had been one week previously.
The editors' cautiousness is a good sign, according to contrarian analysts. Contrarians would be particularly concerned about the sustainability of this rally if too many were jumping on board.
Consider the latest readings of the Hulbert Stock Newsletter Sentiment Index (HSNSI), which reflects the average recommended stock market exposure among a subset of short-term stock market-timing newsletters tracked by the Hulbert Financial Digest. As of Friday night, the HSNSI stood at 27.5%.
That's exactly where the sentiment gauge stood Thursday night, and the previous Friday night as well.
The record low and high for the HSNSI are minus 81.8% and 79.7%, respectively, so the HSNSI currently stands only moderately above the midpoint of that range. In other words, stock-market timers are nowhere close to being excessively bullish.
To be sure, they aren't excessively bearish either. This is a shift from what prevailed at the mid-March low, when the HSNSI stood at minus 29.4%.
Is the HSNSI's 57-point increase since then a cause for concern? Only moderately so, in my opinion. I was more concerned a week ago, and was watching closely to see if the market timers would continue their fairly rapid shift from pessimism to optimism. But, as we have seen, market timers' shift back toward bullishness came to a screeching halt this past week, despite it being the best week for the stock market so far this year.
So, for now at least, according to contrarian analysis, the sentiment winds are continuing to blow in the direction of a higher stock market.
How far and for how long will the market continue going?
Contrarian analysts typically avoid such questions, since the answer depends so crucially on how sentiment changes as the market continues to rise. For example, it would be a very bullish sign if, in the wake of market strength in the next few weeks, advisers stubbornly refuse to become more bullish.
In contrast, the rally would probably have a short additional lifespan if advisers were to become enthusiastically bullish in the face of such market strength.
Fortunately we don't have to predict which is the likely outcome, since we can sit back and watch how the newsletter editors behave.
Stay tuned. End of Story
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.