Sunday, July 26, 2009

Investor Sentiment: Investors Not Buying It

Investor sentiment remains little changed after a two week "melt up".

The "Dumb Money" indicator is shown in figure 1. The "Dumb Money" indicator looks for extremes in the data from 4 different groups of investors who historically have been wrong on the market: 1) Investor Intelligence; 2) Market Vane; 3) American Association of Individual Investors; and 4) the put call ratio.

Figure 1. "Dumb Money" Indicator/ weekly

As investors are not buying into the rally, one might conclude that the rally will march onward and upward until they do, and then it will rollover. That seems likely. However, it is hard to imagine that prices will continue making gains at the pace seen over the past two weeks. I still stand by the sell signal and expected spike in prices that I wrote about two weeks ago. The recent "breakout" in prices will eventually be seen as a better time to sell rather then a new launching pad for a bull market. That's how I see it for now.

The "Smart Money" indicator is shown in figure 2. The "smart money" indicator is a composite of the following data: 1) public to specialist short ratio; 2) specialist short to total short ratio; 3) SP100 option traders. The "smart money" is neutral.

Figure 2. "Smart Money" Indicator


Anonymous said...

And what you think aobut strategy - what is better - sell highs or buy dips, now? :)

I thin wi will top around 1100.. If government don`t flush new stimulus package

Anonymous said...

Sorry for my grammar :))

Guy M. Lerner said...

Personally, I am a person who wants to buy low and sell high; I don't mean that facetiously but I do not like breakouts; I am willing to be patient to get the entry I want; I will try to identify those opportunities but until I have mentioned other ideas in these pages (long long term Treasury yields, short Dollar, long assets, gold, Japan...)that should keep you busy; I think these areas have tailwinds

phil said...

hi guy, thanks for your excellent work. the fact that investors are not buying in may be a sign that the rally has a long way to go - and finally rollover if and when everyone is onboard. i was hoping that your dumb vs smart money would show bullishness in the dumb money and bearishness in the smart money, but surprised that the smart money is actually heading up as well. As you said in your previous articles, it takes bulls to make a bull market.