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MARK HULBERT
Stock-market towel hasn't been thrown in yet
Commentary: Contrarians see no sign of capitulation that marks bottom
By Mark Hulbert, MarketWatch
Last update: 10:54 p.m. EDT June 19, 2008ANNANDALE, Va. (MarketWatch) -- It's too early to tell whether the stock market has successfully passed its retest of the March lows.
But contrarians are not particularly confident that those lows won't be broken.
That's because the typical investment newsletter editor has yet to completely throw in the towel in despair about the market. Until he does, contrarians argue, the market, at best, is likely to continue backing and filling.
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 Thursday night, the HSNSI stood at minus 24.5%. This negative number means that the editor of the average short-term market timing newsletter is recommending that 24.5% of his subscribers' equity portfolios be invested on the short side of the market.
That's a low number, to be sure. But is it low enough?
I'm not so sure.
Tellingly, the HSNSI's current level is not as low as the March lows, when this sentiment index dropped to minus 29.4%.
Ideally, if this were close to the final bottom of the correction that began last fall, this retest of the March lows would be accompanied by even more bearishness than what we saw then. Instead, we're seeing slightly less bearishness.
This is particularly true for those market- timing newsletters that focus on the Nasdaq market ($COMPX:Nasdaq Composite Index
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Last: 2,462.06+32.35+1.33%

5:16pm 06/19/2008

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$COMPX 2,462.06, +32.35, +1.3%) . Consider the Hulbert Nasdaq Newsletter Sentiment Index (HNNSI), which is identical to the HSNSI in all respects except that it focuses only on newsletters that are attempting to time the Nasdaq market.
As of Thursday night, the HNNSI stood at minus 14.3%, in contrast to the minus 53.6% level to which the HNNSI dropped on March 10, the day of the March low.
Note carefully that contrarians are not judging the sentiment data to be outright bearish for the stock market right now. At minus 24.5%, the HSNSI is clearly showing that there is more bearishness than bullishness right now. And that's a good thing, from a contrarian point of view.
But the bearishness that prevails right now almost seems to be a calm and tranquil form of bearishness, as opposed to the gut-wrenching emotions of despair and gloom that typically is seen when the typical adviser throws in the towel, having given up all hope.
Ned Davis, of Ned Davis Research, put it well earlier this week after reviewing the sentiment indicators: "We may need more extreme pessimistic sentiment before we can call sentiment clear-cut bullish."