November 18th  
This is Contrarian data from the largest and most unique database of Individual Investors available. It is important data that investors should be aware of and has emerged as an accurate contrarian indicator based on data from individual investors (or Mr. Public). The data tends to lead the market by 5-10 trading days before indicating market tops or bottoms.

Sentiment Tools that Indicate the Extreme

Summary: Although the Bears are few in number, the ones that we know appear to be getting anxious. We're not sure why. The market doesn't appear to be going anywhere. In the past two weeks there have been a few select tech breakouts, which may have caused concern, but on the other hand some of the old 'new economy' stocks (remember that phrase) suffered big declines. Overall the major market averages are slightly lower but near the levels where they stood in mid October. So let's put a little perspective on the past few weeks of market sentiment and stock index performance.

As our readers know our sentiment services registered a bearish signal in the October 21st Real Sentiment report. The shift to a bearish stance from a bullish stance was also reiterated in our last report issued November 4th. Since that initial date, we have corresponded with you 3 times, through one alert and two summary reports.

The first correspondence was on Oct 15th, when we sent out an alert that notified you that the current survey results (at that time) were indicating extremely high bullish levels and low bearish levels. By the time the survey ended the final tabulations were still on the extreme bullish end. That same day the Dow topped out 9,901, while the S&P 500 hit 1,053. The second communication we sent to you was on October 21st when we issued the summary of those actual survey results. That day the Dow hit 9,824 and the S&P 500 clipped 1,049. The third and last correspondence came on November 4th, when we issued our most recent summary report. On that day the Dow was at 9,905, and the S&P 500 stood at 1,058. Since that initial correspondence on October 15th, the Dow has traded as low as 9,436, while the S&P 500 bottomed at 1,018. As of the close Friday, November 14th, the Dow was at 9,768 and the S&P stood at 1,050. The recent bullish reading of 64.3% for the mid November period suggests we remain in an extremely overbought basis and so the data remains 'very' bearish on US stocks.

Speaking of Bears, a correction in the Japanese stock market appears to be in place with no signs of a quick rebound to higher levels. The Nikkei has gone nowhere since September 1st and it is now near early July levels of 10K. But every big correction that we have accurately forecast in Japan, there has been a market reversal and moved higher. Will this time be different? While sentiment for the region is coming down, it's still not close to the low 2 and 3 percent levels seen back in May when the Nikkei started to rally. We don't think the risk/reward scenario is yet favorable to be long Japanese stocks.

And speaking of Pacific Rim countries, Asian market sentiment (outside of Japan) has now reached frothy levels. Similar to the action we saw in Japan over the summer, the Hang Seng has recently suffered a big few drops of its own. But it too has reversed and headed higher. The consistent strong rise in the bullishness levels for Asian stocks now resembles a herd of wildebeest (chasing the index higher). This rising sentiment may soon take the legs out from under Asian stocks.

The sector data's most compelling read continues to be healthcare and gold. We indicated in the last report that sentiment is bottoming for the healthcare group and this represented a good time to buy the drug sector. The group has since rallied, while sentiment surprisingly drifted even lower. Gold sentiment is acting responsibly even as the metal closes in on the elusive $400 an ounce level. The data suggests that we continue to be bullish on gold.

The dollar's woes picked up last week (again) but the greenback appears to be range bound at this point. Sentiment indicates that a trading range period may be in store, while over time the dollar may creep higher. Treasuries headed higher, not surprising based on the last report data, which indicated that low sentiment finally had provided some direction for bonds and that they may have temporarily bottomed. The latest sentiment did advance from 2 weeks ago, but not substantially.

So to recap, we continue to be bearish on US stocks. We would reiterate with an exclamation point the data's bearish signal on Asian stocks, as sentiment for the region may be peaking near the 39% level.
Individual Investor Bullishness

June '03
July '03
Aug '03
Sept '03

Observations: The mid-November reading of 64.3% is fractionally lower than our highest bullish reading of 64.8% recorded on Oct 21st. However, the bearish market reading hit an all-time low of 12.7% vs. the 13.7% in the same mid October period.


All these signals should point to one thing - lower stock prices. Several savvy contrarian investors we know have suggested to us that while they agree that investors are overly bullish and optimistic, they don't think stocks prices are going to fall much. Instead they feel that the market may stagnate or enter a period of vacillation for possibly two, maybe even three, quarters moving forward. They added that this longer period of virtually stagnant stock market returns would eventually frustrate investors causing sentiment to fall, thereby providing the replenished oxygen for the markets to move forward again sometime in the 2nd or 3rd quarter of next year. One even suggested that we foretold of this outcome in our Sept 3rd and 16th reports when we suggested that the Dow will extend the top of its trading range to around 9,800 (bottom 9,250) while the S&P 500 could reach levels near 1,065. And while we agree with this, we also feel that every trading range is different and the length of a trading range can vary. It can either be short-term (measured in weeks) or longer term (measured in months, maybe even one-year). But due to the current extreme high levels of bullish investor sentiment, the data suggests that this trading range will prove to be shorter-term versus a two or three quarter long trading range.

Individual Investor One-Year Optimism Outlook

June '03
July '03
Aug '03
Sept '03

Observations: The mid November results were nearly identical to the beginning of month optimism data indicating that the longer-term outlook for stock keeps getting grimmer and grimmer. From a hypothetical standpoint this indicator is now telling us that stocks will under perform in the future from June of 2004 through at least November of 2004. Not a bright outlook particularly if you're trying to win a Presidential election. The theory goes like this: As soon as optimism jumped above the 70 to 75 percent mark, which it did in June of this year (and hasn't decreased since), it spelled doom for stocks one year out from that timeframe. Worse yet, the fact that investors have only gotten more optimistic from that timeframe should only add to a prolonged pessimistic period (and bearish scenario for stocks) in the summer and fall of 2004.

You're probably asking - how can we be sure? Because the same comparative 2002 results yielded the exact opposite (contrarian) results that we're experiencing today. The optimism figures in June of 2002 through October 2002 were low, ranging in the 50 to 60 percent levels. So they are the exact opposite today of what investors expected one year ago.

Need more proof? In March of 2002, one-year market optimism peaked at the 80% level (right before a prolonged bear market). In March of 2003, the exact opposite reading occurred as one-year market optimism bottomed at 51.1% (right before a big 9-month rally was about to occur).

Individual Investor Global Asset Allocation Sentiment

 Region   June '03   July '03   Aug '03   Sept '03   Oct '03   Nov '03   Mid-Nov 
 Africa   0.3%   0.3% --  0.4%   1.0%   0.4%   0.6%   0.7% 
 Asia   22.1%   23.6%   28.8%   31.4%   32.9%   32.5%   39.3% 
 Europe   9.7%   11.5%   6.3%   5.4%   5.0%   6.0%   7.2% 
 India   2.4%   2.7%   3.4%   4.8%   5.0%   5.2%   6.6% 
 Japan   4.1%   6.4%   8.2%   10.3%   14.0%   12.3%   7.2% 
 Middle East   2.8%   1.2%   2.0%   1.0%   1.3%   0.4%   0.9% 
 Russia   5.2%   2.4%   3.0%   3.4%   3.8%   3.3%   1.7% 
 South America   4.5%   3.3%   1.8%   1.2%   1.0%   2.1%   2.0% 
 United States   49.0%   48.5%   46.2%   41.6%   36.5%   37.5%   34.5% 

Observations: We would like to thank those investors we mentioned above in the bullish section that we re-read a few of the past reports. We found something interesting in several of our previous Asian market sentiment reports that we felt we should pass along. In the Oct 7th report, we maintained a bullish call on Asian Stocks (outside of Japan). But one day later on Oct 8th, we issued an 'alert' that we had a changed our tune and had gone negative of Asia. As noted in the alert, we used partial data outside of the sentiment surveys (data gathered at our website, to formulate this change in opinion. Initially this was a correct call as shortly after the 'alert' the Asian markets, most notably the Hang Seng, sold off sharply. It started with a 500 point one day decline, and then fell another 250 points (or about 7%) before rebounding. So, we went back to the Oct 7th report for a re-read on Asian market sentiment and found these comments;

"Asian stocks (outside of Japan) continue to move higher after a range bound September. Sentiment has now been in the high 20 to low 30 percent range since August. We continue to like the region for modest but stable gains. If sentiment were to increase near the 40% levels, we would change our outlook on the Asian region."

So our initial call was right on but we missed the ensuing rally because we used additional data to reinforce the call. In hindsight, that was probably the wrong thing to do. But now the mid November reading is 39.3% (in line with our original analysis). This latest reading is a 'pure' sentiment result for the Asian region. Therefore, the data suggests that you start selling Asian stocks.

As for the the Japanese market, it continues to fall. We don't expect to see any signs of a turnaround until sentiment reaches the April or May lows of two and three percent.

While the data still suggests that all of the developed markets will correct if and when US stocks begin to fall, Russian market sentiment may be at a point of opportunity. The sell-off stemming from the now infamous arrest of Mikhail Khodorkovsky may be presenting a strong buying opportunity. Money that flows out of the US, Japan, and Asia, as result of lower stock prices, may end up in Russian stocks. If sentiment remains low at the beginning of December, we would then suggest getting bullish on Russian stocks.

Individual Investor Sector Sentiment

 Sector   June '03   July '03   Aug '03   Sept '03   Oct '03   Nov '03   Mid-Nov 
 Basic Materials   4.8%   5.4%   8.5%   5.5%   7.1%   6.6%   6.4% 
 Consumer, Cyclical   6.9%   5.1%   10.0%   13.4%   10.8%   12.0%   11.6% 
 Consumer, Non-cyclical   4.1%   3.9%   3.9% --  3.9% --  3.1%   1.9%   3.2% 
 Energy   10.6%   17.4%   11.2%   16.0%   18.8%   16.5%   18.2% 
 Financial   12.3%   13.5%   10.7%   4.9%   6.2%   11.8%   7.5% 
 Gold   11.6%   7.2%   10.0%   16.4%   13.5%   9.7%   13.1% 
 Healthcare   15.8%   16.2%   14.1%   8.1%   7.5%   7.0%   5.1% 
 Services   1.7%   3.6%   3.0%   3.6%   2.9%   1.6%   3.2% 
 Technology   26.0%   21.3%   25.1%   24.9%   25.8%   28.7%   27.8% 
 Transportation   1.0%   1.5%   0.7%   0.8%   0.8% --  1.6%   0.4% 
 Utilities   5.1%   4.8%   2.9%   2.6%   3.3%   2.7%   3.4% 

Sector Highlights
Observations: The data indicates that healthcare and gold continue to represent the only two sectors that may outperform the market. Regardless of what the markets does, the sentiment results remain very favorable for the healthcare group. The mid November healthcare results were actually lower than the (already low) beginning of month results. This makes the group even more attractive. And the stock action in both healthcare and gold, as is indicated in the chart below looks great when compared to the market of the S&P 500. We would expect higher prices for both sectors moving forward.
Gold, Healthcare, S&P 500 5 Day Comparative

Individual Investor Fixed Income Sentiment Polls

 Bullish   16.2%   12.0%   11.9%   10.5%   11.3%   15.4%   8.9%   10.1% 
 Bearish   31.6%   38.8%   42.6%   47.8%   44.9%   34.0%   40.3%   46.3% 
 Neutral   52.2%   49.1%   45.6%   41.7%   43.7%   50.5%   50.8%   43.6% 
 Corporate Bonds  MAY  JUNE  JULY  AUGUST  SEPT  OCT  NOV  Mid-NOV
 Bullish   22.4%   19.7%   24.3%   18.2%   18.4%   19.5%   20.4%   18.9% 
 Bearish   29.9%   29.4%   26.8%   34.7%   32.3%   27.2%   26.4%   34.3% 
 Neutral   47.8%   50.9%   48.9%   47.1%   49.3%   53.3%   53.2%   46.8% 
 Municipal Bonds  MAY  JUNE  JULY  AUGUST  SEPT  OCT  NOV  Mid-NOV
 Bullish   16.3%   9.0%   12.9%   10.5%   9.3%   11.3%   10.6%   8.9% 
 Bearish   32.6%   36.5%   35.4%   39.8%   39.4%   32.3%   32.1%   36.6% 
 Neutral   51.1%   54.5%   51.7%   49.6%   51.3%   56.4%   57.2%   54.5% 

Observation: The last report proved profitable for those who took advantage of the low sentiment results exhibited in early November. Treasury bonds and notes have rallied strongly. We expect that treasuries will rally upwards near the 112 range before sentiment starts to increase into the high teen levels. At that point we would then look to re-evaluate the data.

Investor Currency Bullish Survey

    June   July   Aug   Sept   Oct   Nov   Mid-Nov 
 US Dollar     22.0%   33.0%   39.4%   47.1%   21.2%   29.1%   28.6% 
 Euro  54.9%   39.4%   35.5%   28.9%   49.0%   41.2%   44.8% 
 Japanese Yen  22.9%   20.9%   27.7%   34.1%   52.4%   49.6%   46.8% 
 China Yuan  26.4%   34.8%   36.4%   37.8%   40.9%   44.1%   44.2% 
 UK Pound  27.9%   26.8%   22.7%   20.0%   21.7%   27.4%   28.3% 
 Swiss Franc  29.5%   26.2%   22.2%   20.1%   28.2%   27.2%   27.3% 
 Russian Rouble  17.4%   17.0%   17.9%   17.3%   22.9%   14.0%   15.3% 
 Mexican Peso  11.9%   11.1%   12.1%   11.1%   12.5%   12.0%   15.7% 
 Argentine Peso  12.4%   11.4%   12.9%   12.9% --  9.9%   14.5%   14.9% 
 Brazilian Real  16.8%   12.3%   14.0%   15.2%   11.4%   16.7%   15.4% 

Observation: Despite the recent choppiness and the recent downward direction for the US dollar we remain somewhat bullish on the US greenback. A trading range for the US dollar index may now be established somewhere near the high end of 95.0 and the low end of 92.0. The fact that sentiment remains relatively high for the Yen and Euro versus sentiment for the US dollar should keep any large moves (in all three currencies) in check. We remain favorable on the South American currencies (versus the dollar) despite the recent weakness in both the Mexican and Argentine Pesos. Unlike the Mexican and Argentine Pesos, the Brazilian Real remained strong against the dollar.

Individual Investor Interest Rate Action Sentiment
(We poll investors monthly to see if they believe the Federal Reserve will increase, decrease, or leave rates unchanged at the next monthly Fed meeting.)
 Expectation  Mid-June   Mid-July   Aug   Mid-Aug   Sept   Oct   Nov   Mid-Nov 
 Increase  2.0%   1.6%   2.0%   3.3%   4.1%   2.9%   4.5%   8.9% 
 Decrease  43.8%   23.8%   14.2%   2.7%   1.8%   4.8%   1.0%   1.1% 
 Leave Unchanged      54.2%   74.7%   83.8%   94.0%   94.1%   92.3%   95.5%   90.0% 

Observations: Investors still believe that the Fed is miles away from any changes in interest policy. Over 90% of investors still believe that no fed cuts or rate hikes are in the works. The next FOMC meeting is December 9th through the 11th. The only noticeable change in the Fed is their rhetoric, which has turned from speculation of when rates would be lowered to speculation of when they may actually raise rates. Rising rate speculation was virtually unheard in the previous 3-years.

Commodities Bullish Survey

 Major Commodities Bullish Survey  Mid-Sept  October  Mid-October  November  Mid-November
 Coffee   20.5%   20.3%   23.1%   20.5%   23.8% 
 Gold   51.3%   49.1%   41.6%   44.4%   49.0% 
 Oil   49.2%   51.4%   51.5%   45.5%   52.4% 
 All Commodities Bullish Survey        Mid-Sept  October  Mid-October  November  Mid-November
 Cattle   1.9%   1.1%   3.3%   2.0%   4.2% 
 Cocoa   0.9%   0.7%   0.7%   0.9%   0.7% 
 Coffee   2.6%   2.5%   2.6%   3.1%   2.9% 
 Copper   5.1%   3.8%   6.1%   2.0%   8.0% 
 Cotton   1.1%   0.2%   0.7%   0.9%   0.4% 
 Gold   24.9%   20.3%   13.7%   14.2%   18.6% 
 Heating Oil   16.0%   16.7%   21.8%   20.6%   18.9% 
 Hogs   0.2%   0.2%   0.4%   0.4%   0.7% 
 Natural Gas   33.2%   38.6%   34.4%   36.1%   31.0% 
 Oil   7.5%   8.0%   7.6%   7.7%   5.8% 
 Platinum   1.7%   2.0%   2.0%   2.6%   3.3% 
 Soybeans   2.6%   1.1%   3.5%   1.8%   3.6% 
 Sugar   1.1%   2.2%   2.8%   0.9%   0.9% 
 Wheat   1.5%   2.5%   0.4%   1.8%   1.1% 

Observations: We began to collect sentiment data on Commodities over the past sixty days. The data is collected similar to our other market categories and will be presented in similar like fashion.

We have broken down the Commodity survey into 2 main sections. The first category reviews the three major commodity groups; Gold, Oil, and Coffee. We will collect a full bullish, bearish, and neutral reading on these three commodity sectors similar to the way we currently collect fixed income data or the bullish/bearish market readings.

Our second commodity offering is collected and tabled similar to the way we gather information for stock sectors and the global regions. We survey individual investors on which 14 commodity groups they find most attractive over a 1-3 month outlook. Gold, oil and coffee are included in this larger commodity category. We will begin to add this data to the reports as one of our major market categories.

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WhisperNumber's Sentiment Reports are for informational purposes only, and are not a recommendation to buy, sell, or hold any security, or that any investment strategy discussed is suitable for all investors. There is a very high degree of risk involved in the purchase and sale of securities and and all individuals affiliated with Sentiment, Expectations & Earnings, Inc. assume no responsibilities for the trading and investment results of subscribers. Past results are not indicative of future returns. and Sentiment, Expectations, & Earnings, Inc. employees make no representations or guarantees and are not licensed brokers, analysts, or registered investment advisors. Data presented is based on sentiment research and analysis. Reproduction or redistribution in any form is strictly prohibited.

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