Saturday, August 29, 2009

Investor Sentiment: 4 Charts Are Now 1

As investor sentiment remains at the same extreme bullish levels as last week, I have decided to forgo the normal 4 charts that I show and consolidate them into a single chart complete with a composite indicator that measures all levels of investor sentiment. This should be another time saving moment for our readers.

See figure 1 a weekly chart of the S&P500 with the composite indicator in the lower panel. The indicator looks at investor sentiment from 2004 to the present.

Figure 1. Investor Sentiment Composite

So what am I measuring? Normally we have 4 charts looking at:

1) the "Dumb Money" indicator; 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.

This week, the "Dumb Money" indicator remains very bullish to an extreme degree.

2) the "Smart Money" indicator; 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.

This week, the "Smart Money" remains neutral.

3) the Rydex bullish and leveraged v. the Rydex bearish and leveraged assets.

This week, the Rydex bullish and leveraged traders outnumber their bearish and leveraged cohort by more than 2 to 1.

4) the InsiderScore entire market insider buying and selling.

This week company insiders continue to sell in record numbers.

So our composite indicator requires 13 different types of data and encompasses multiple investor groups such as retail and professional investors and company insiders. The indicator is a very comprehensive look at market and investor sentiment.

As expected, investor sentiment shows a lot of bullish optimism (while company insiders are net sellers to an extreme degree), and this puts our indicator in the extreme optimism zone, which is a bearish signal.

So what does this mean? It will likely take several weeks for such bullish extremes to unwind. In essence, what I stated several weeks ago still stands: 1) the greatest gains are behind us; 2) the markets are to trade in a range with an upward bias; 3) there will be a bid under the market; 4) it will be tough to short or bet against this market for the foreseeable future. That sounds like the current market as we come into the last week of Summer!

Friday, August 28, 2009


You are not alone if you feel a sense of increasing risk as the equity markets continue to elevate after a 50% plus run in 6 months. One can only imagine what kind of moon shot would have occurred if the fundamentals were really good as opposed to less bad. Nonetheless, buyers of the i-Shares Lehman TIPS Bond Fund (symbol: TIP) are also sensing the risk of a rising equity market built on so much hope.

Figure 1 is a weekly chart of the i-Shares Lehman TIPS Bond Fund (symbol: TIP) in the top panel v. the S&P Depository Receipts (symbol: SPY) in the bottom panel. First, the movements of these two instruments are poorly correlated across multiple time frames. Second, TIP's tend to top when investors are bearish on equities as determined by the "Dumb Money" indicator, and TIP's tend to bottom when investors are bullish on equities. In essence, when investors seek safety from equities, they move into TIP's. And this appears to be happening even though the equity markets continue to defy gravity.

Figure 1. TIP v. SPY/ weekly

Looking at figure 1, we note the current "breakout" in TIP over a down trend line (inside the gray oval). TIP's bottomed (inside the gray rectangle) in 2006 and 2007 while the SPY was in the process of topping out. TIP's then moved significantly higher in October, 2007 once the top was in for equities (noted with vertical red line). Tips generally moved higher from 2004 to 2005 (black up arrow) while equities were range bound.

In sum, the TIP's ETF has "broken out" as it appears to be attracting the interest of investors. Why this is so in the face of a rising equity market should be of interest (and maybe a note of caution) to equity investors and those who see nothing but bullish pastures ahead. In the past, TIP's has generally performed well when equities have underperformed. I view the rise in the equity markets as a time of increasing risk, and it appears that TIP's investors feel the same way too.

Thursday, August 27, 2009

The Financial Media In A Nutshell

It is the same story but two vastly different headlines.

The story is Dell and their earnings after Thursday's market close.

The first headline comes from Bloomberg. See figure 1.

Figure 1. Bloomberg/ headline

The second comes from MarketWatch. See figure 2.

Figure 2. MarketWatch/ headline

I was surprised honestly as the Bloomberg headline is more bullish than MarketWatch; I would expect less cheerleading from Bloomberg. Furthermore, isn't the differences in the headlines reminiscent of the rally over the past 6 months where the markets rose on lowered expectations and cost cutting despite awful economic conditions?

Reading Bloomberg's headline suggests that Dell had a blowout quarter; MarketWatch's headline has a sense of dread to it especially since it is so big and bold. I guess it is how you spin it!

Wednesday, August 26, 2009

Long Term Treasury Yields: Someone Is Going To Be Wrong

For over 8 months now, I have been chronicling the plight of the 10 year Treasury bond. Based upon the "next big thing" indicator it was my expectation that yields on the 10 year Treasury bond would rise once there was a monthly close above a yield of 3.342%. This occurred at the end of May, 2009.

See figure 1 a monthly chart of the yield on the 10 year Treasury bond. The "next big thing" indicator is in the lower panel, and the close over the "key" pivot low point is identified with the blue up arrows. Once this technical metric was met within the confines of the "next big thing" indicator being in the position where we would expect a secular trend change, it was my expectation that this would result in higher yields over the next 12 months.

Figure 1. $TNX.X/ monthly

Technically, the set up is there, but the fundamentals for higher yields have always been questionable. Some of the fundamental headwinds for higher yields include: 1) rising unemployment; 2) a deflationary environment as reflected in 50 plus year low in CPI; 3) an economy that has "leveled out" but that has yet to demonstrate any real growth. Despite the technical signal 3 months ago, the fundamentals have not appreciably changed. Furthermore, the Fed's back stopping of the bond market has put an unknown bid behind Treasury bonds.

Treasury yields did "pop" to 4.014% in June, but there has not been any follow through, and looking back to figure 1, we note that Treasury yields are sitting just above support.

But here is the point: Treasury yields have not moved higher; in other words, the Treasury market is not discounting the economic recovery. On the other hand, the stock market has roared ahead discounting the recovery (and then some). This divergence is noticeable, and it appears someone is going to be wrong.

Now let's drill down and look at a weekly chart of the 10 year Treasury yield. See figure 2. The pink markers over the price bars are negative divergence bars, and we note a cluster of these suggesting that upside momentum has been severely curtailed.

Figure 2. $TNX.X/ weekly

I had previously pointed out (see: "How Will We Know If The Secular Trend In 10 Year Treasury Yields Is For Real?") that such a cluster of negative divergence bars was an ominous sign for higher yields. See figure 3, a weekly chart of the 10 year Treasury yield. The indicator in the lower panel counts the number of negative divergence bars occurring over the prior 13 week period. When the indicator is red, it means that there are at least 3 negative divergence bars occurring over a 13 week period. As you can see, the prior 5 times going back to 1987 generally marked the top in 10 year Treasury yields; prior to 1987 (and not shown on the chart), there were 2 other occurrences - one resulted in a big sell off while the other was mild. So we should respect this pattern!

Figure 3. $TNX.X/ weekly

But let's take a closer look at figure 2. A weekly close below a yield of 3.437% would be a sign of lower yields within the context of these multiple negative divergence bars. Furthermore, the breakout from the channel would be a failure, and the blue up trend line would be broken. Technically, the 10 year Treasury yield is looking into the abyss of a failed signal. A monthly close below the 3.342% would be further confirmation of lower yields.

Two other points are noteworthy. One, a failure of this signal does not necessarily imply a secular trend change for Treasury bonds; they may be good for a trade but I don't see a secular trend developing from these low level of yields. Two, a failed signal in Treasury yields has a reasonable chance of signalling the top in equities. In other words, the divergence between lower yields - a sign of economic weakness - and higher equity prices - a sign of economic strength - will not persist for long. Most importantly, it was the failed signal in June, 2002 that coincided with a 25% plus drop in equities over the next two months. It should be noted that the current set up in Treasury yields and likely failure is exactly the same as in 2002!

Figure 4 is a monthly chart of the 10 year Treasury yield compared to the S&P500 (lower panel), and the failed signal in 2002 is highlighted in the oval.

Figure 4. $TNX.X v. S&P500/ monthly

To summarize, technical weakness seems likely in 10 year Treasury yields. This is sign of economic weakness and it is at divergence with the strength in equities. It would seem likely that this divergence will not persist for long. The current set up in 10 year Treasury yields is reminiscent of 2002, and it should be noted that a failed signal in the 10 year Treasury yields led to a significant down draft in equities.

Monday, August 24, 2009

Asset Allocation Road Map: US Equities

Before getting to my outlook for US equities, I feel that I first must explain why my methodology did not anticipate this monstrous move off the March, 2009 bottom.

In short, the explanation is that I don't have an explanation. Now I could consider this a failure of my methodology or the tools that I use to navigate the markets, but I don't. To understand why I feel this way, I will take you on a quick review of the past 6 months.

On March, 2009, I wrote the following:

"So here we are with the "smart money" bullish and the "dumb money" bearish. Beautiful! According to the back testing process, the optimal time to buy would be after this Friday's close.

Lastly, if equities do rally, I believe this will be a counter trend rally within an ongoing bear market. This will not be "the bottom", and it is my belief that "the bottom" will take time (i.e., many more months) to develop."

I was in at the bottom, but little did I know at the time that the S&P500 would embark on a 50% rally! As many of you may remember, I kept saying that this was a bear market rally and that this was not the launching pad for a new bull market. Now after a 50% rally in the S&P500, the best I can do is state that this is a cyclical bull run in an ongoing secular bear. I will be right, but once again, I did not anticipate the last 20% of this rally.

I was basing my observations on the fact that the "next big thing" indicator, which is a tool that I use to identify those technical conditions seen at market bottoms prior to secular trend changes, had not gotten into the correct position, and it would be unlikely to do so for a long while. Furthermore, a strong snapback rally was expected as sentiment had gotten very bearish (i.e., bull signal), and prices were very oversold by all known metrics, but bear markets rarely end in a "V" shaped bounce. Typically, there is a basing period before secular trends reverse.

Towards the end of April, I was tightening up stops and looking to sell strength. Bear market rallies generally move a certain period of time (weeks on x axis) and distance (percent gains on y axis), and this one did not appear any different. So you get out while the getting is good. The market did not rollover and in fact, the S&P500 traded higher than I had expected, which was based upon similar situations in the past. Maybe this was a sign: when the market doesn't behave as you expect, you should take notice.

Although my "call" to sell strength at the end of April wasn't looking good in the first parts of May, by the early parts of July, the S&P500 was actually trading back at the levels seen on May 1. My "call" was looking a lot better as the S&P500 hadn't gone anywhere for 10 weeks. Yes, the S&P500 had managed to get over the falling simple 10 month moving average by the end of June, but even this positive sign was looking like a failed signal. As we all know, the market took off from this point as the "this time is different" scenario unfolded. Like all good rallies, it started with short covering and has gone on further than most anticipated. What was looking like an extraordinary bear market rally that was rolling over in early July - or maybe just a normal bounce back given how far prices were oversold- turned into a bullish stampede and trampling of the bears as the S&P500 moved 18% higher over the last 7 weeks.

So that brings us to today. Our bear market rally has turned into something more, and one of the key tools that I use to navigate the markets (i.e., the "next big thing" indicator) appears to have failed to identify this important turn for the better in the markets. Or has it?

I say "appears" because I still could be correct; in this environment, we could just as easily find ourselves at new lows or new yearly highs within 6 months time. Either way, I would not be surprised. I say "appears" because the indicator did work well in identifying several key sectors and the Russell 2000 index that have been market leaders over the past 6 months. So I am not ready to throw the "next big thing" indicator in the junk pile, and in fact, I still think it has great validity that is supported by the data across multiple market eras and many different asset classes.

So what went wrong? Honestly, I am not sure. The idea behind the "next big thing" indicator is that it assesses not only how far prices have dropped but how long investors have been underwater. We are looking at the y axis as much as the x axis. The price drop in the S&P500 was rather significant yet it occurred over a relatively short time period. The time component really has not been there, and that still leaves the notion on the table that this very "V" shaped rally may rollover. In other words, what we are really witnessing is a very strong bear market rally or the indicator was not sensitive enough to pick up the potential for this market move. Be that as it may, what we call it or how we react are really two different things.

So what do I see for equities going forward? On a purely price basis alone, the equity markets have bottomed. Now that may sound like a stupid statement after a 50% move, but the price evidence is there to suggest that March, 2009 was an important market bottom. What is the evidence? If we look at figure 1, which is a weekly price chart of the S&P500, we note the blue up arrows. It was at this point that we had a weekly close over 3 pivot low points, and looking at over 50 years of S&P500 data, this kind of price action has tended to define bear market bottoms leading to secular trend changes. Conversely, a close below 3 pivots (like we have seen in the Dollar Index) is another good measure of a market top.

Figure 1. S&P500/ weekly

In any case, even within the confines of a bull market, the price cycle -or that cycle of fear and greed that the "Dumb Money" indicator attempts to quantify - will exert itself. Although I don't know when, I am pretty sure at some point in the future that there will be a buying opportunity where investors turn bearish (i.e., bull signal). If following that signal the markets do not achieve new highs for this price cycle or trade below the levels seen at the time of the signal, then there is a high likelihood of prices trading much lower.

Think about it this way: with the S&P500 so far above its 200 day moving average, it is unlikely that the market will rollover without this key metric being defended. We will get a sell off, sentiment should turn bearish (i.e., bull signal), and we will get a bounce. The nature of that multi -week bounce will be the tell.

The bigger question remains and it is the question we can only answer with the passage of time: Will the events of the past 6 months be seen as a new secular bull market or a cyclical bull market within an ongoing secular bear market?

In sum, March, 2009 was an important bottom for equities that was not expected by my methodology. The nature of the price action and the extent of the rally would suggest a prolong period of time before the market rolls over. This is not meant to be a prediction that the market will roll over, but to suggest that the markets will need to go though the normal price cycle, which is dictated by fear and greed, before rolling over. This will take time to manifest itself.

In the next installment of this series, I will discuss why I like commodities over equities and Treasury bonds.

Saturday, August 22, 2009

Investor Sentiment: I Have Said It All!

Ok, I have said enough. I have said it all. There is nothing else to say. To spare you the trouble of having to waste your time reading and to spare me the embarrassment, there will be no comments this week. Just graphs. As expected, the sentiment picture has changed little from last week. Go bulls!!!

Figure 1. "Dumb Money" Indicator/ weekly

Figure 2. "Smart Money" Indicator/ weekly

Figure 3. Rydex Bullish and Leveraged v. Rydex Bearish and Leveraged/ daily

Figure 4. Insider Score/ Entire Market Insider Buying and Selling

Friday, August 21, 2009

This Time Is Different (In Reverse)

In past articles to explain the price action, I have defined the "this time is different" scenario. For example, at market tops we typically see negative divergences between prices and momentum oscillators that measure price. These negative divergences are indicative of slowing upside momentum and a point where traders are likely to look for the market to rollover. If prices continue to move higher despite the presence of these negative divergences, often times we find investors saying "this time is different" as prices accelerate much higher. Of course, I think the acceleration in prices is due to short covering as traders who where expecting the market to rollover are now forced to cover their positions.

The "this time is different" scenario can also work in the other direction too. At market bottoms, we often see positive divergences between price and momentum oscillators that measure the price action. As downward momentum slows (i.e., presence of positive divergences), traders will position themselves for the market to reverse and move higher.

What happens if the market doesn't reverse? What happens if the market trades below those positive divergence bars? Just like we see an acceleration of higher prices to the upside, we can also see an acceleration of prices to the downside as traders unwind losing positions.

Why is this relevant? It appears that the Dollar Index, which is our key asset class that is driving all other assets, has closed below the low of a positive divergence bar, and this is a negative for the Dollar. See figure 1 a weekly chart of the Dollar Index (symbol: $DXY). Positive divergence bars are labeled with the pink markers inside the gray ovals on the price chart. The low of the most recent negative divergence bar is 78.23, and today's close is 78.08.

Figure 1. Dollar Index/ weekly

So let's ask a very simple question: what happens to prices when there is a close below the low of a positive divergence bar? To understand the dynamics at work here, we will construct a simple strategy:

1) sell short the Dollar Index on a weekly close below a positive divergence bar
2) buy to cover on a close above the 40 week moving average
3) buy to cover on a weekly close above the high of the positive divergence bar
4) slippage and commissions were not considered in the analysis.

Remember, this is the reverse of the "this time is different" scenario.

Since 1973, such a strategy had yielded 50 points in the US Dollar Index; buy and hold would have netted minus 18 points. There were 25 trades and 68% of these were winners. The average time in all trades was 14 weeks with winning trades lasting 18 weeks. Figure 2 is the equity curve from this strategy. Maximum equity curve draw down is about 25%, and the RINA Index, which measures trade efficiency (i.e., points gained v. time in market v. draw down), is a very high 248.

Figure 2. Equity Curve

To get an idea how significant the down draft may be in store for the Dollar Index let's look at the maximum favorable excursion (MFE) from this strategy. MFE measures in percentage terms how far a trade can go in your favor before it is closed out for a loss or a win. For example, look at the MFE graph from this strategy in the Dollar Index. Remember we are shorting the Dollar Index here. See figure 3. The green caret within the blue box represents one trade. This trade ran up about 4% (x-axis) and was closed out for a 1% gain (y-axis). We know this trade was a winner because it is a green caret.

Figure 3. MFE Graph

Out of the 25 trades from this strategy, 6 (or 25%) ran up greater than 9%; this is to the right of the blue line. 60% (15/25) of the trades ran up over 5%; this is to the right of the red line. So there is a 60% chance of getting a 5% move lower in the Dollar Index.

How does this set up - a close below the low of a positive divergence bar - compare with the strategy discussed in the article "The Dollar Index: Key To Market Dynamics"? In that strategy, a short position was taken on a weekly close below 3 pivot low points, and this strategy gave a signal 4 weeks ago.

Comparison probably isn't the right word here. Rather, the current strategy is probably best viewed as a continuation of the prior strategy. Both strategies have the potential to see the Dollar Index really unravel; this we know. In both cases, 25% of the trades had large MFE's; in both cases, over 60% of the trades had MFE's greater than 5%.

But here is the kicker: the current strategy sees those gains occurring over an 18 week time frame. Whereas the prior strategy, sees those gains occurring over a 65 week period. In other words, when there is a close below the low of a positive divergence bar in the Dollar Index, losses can accelerate. This leads to more efficient gains (i.e., if you are betting against the Dollar Index) as you make more money with less market exposure. As expected, the RINA Index, which is a measure of trade efficiency, is 30% higher with this strategy than with the original strategy.

So the current set up is like the "this time is different" set up but in reverse.

So let's briefly stop and summarize. The Dollar Index has closed below the low of a positive divergence bar, and I am expecting prices to accelerate lower over the next 4 months. A weekly close above the pivot low point at 79.46 would be a reason to re-evaluate this position.

To be complete in our analysis, the maximum adverse excursion (MAE) graph is shown in figure 4. If a trade lost (or had a draw down of) more than 2.5%, it had a high likelihood of being a losing trade. These are the trades to the right of the red line.

Figure 4. MAE Graph

So if the Dollar is going down, then everything else must be going up. At least, that is how it is working these days. Dollar down, equities get a lift; stocks rally on good news and bad as it doesn't matter. The Dollar is down! A down Dollar is good for commodities too; oil was up 4 days in a row. Even good old Treasury yields have benefited. Forget about equities, the 10 year Treasury yield was up 3.41% today. Yeah, it is sad, but it is what it is!

As far as equities are concerned, well I am starting to sound like a broken record: the market is overbought, oversubscribed (i.e., too many bulls) and has limited upside potential. "Where do we go from here?" is a refrain I often ask myself, and I am starting to think about what happens when investors rush for the exits. From a reward to risk perspective, this isn't my "cup of tea". The market remains range bound albeit we are at the upper limit of that range.

If the Dollar Index continues its downward spiral, then I would expect commodities, gold, and long term Treasury yields to out pace equities. As I have shown in the past, when the trends in these assets are strong, equities face a stiff headwind.

Wednesday, August 19, 2009

Asset Allocation Road Map: Update On Dollar Index

In our asset allocation road map for the next 12 months I stated the following:

"In a nutshell, I would have to state that I like commodities over long term Treasury yields and equities, and the key driver will be the falling US Dollar Index."

In this article, by PIMCO's Curtis Mewbourne, entitled, "Emerging Markets in the New Normal", he discusses the longer term headwinds facing the US Dollar. In particular, he states:

"And while we have not yet reached the point where a new global reserve currency will arise, we are clearly seeing a loss of status for the U.S. dollar as a store of value even in the absence of a single viable alternative. In combination with other factors, that likely means a continuing devaluing of the U.S. dollars versus other currencies, especially the EM currencies. Accordingly investors should consider whether it makes sense to take advantage of any periods of U.S. dollar strength to diversify their currency exposure."

Once again, I believe the Dollar Index will be the key asset to watch. In particular, a weekly close greater than 79.46 on the Dollar Index (symbol: $DXY) would be reason enough to re-consider this position. On the other hand, a weekly close below 78.23 could possibly lead to an accelerated move lower as those "fishing" for a bottom get out of their long positions.

Lastly, as promised, sometime in the future, I will provide you with insight -from a technical or price perspective - as to why I like commodities over equities and Treasury yields.

Thanks to the ZeroHedge blog for bringing this commentary to my attention.

Saturday, August 15, 2009

Investor Sentiment: The Perfect Trifecta

The "Dumb Money" indicator continues to hit new extremes despite last week's slight down market. The Rydex market timers continue to be bullish and leveraged to the extreme. And to round out our sentiment analysis, selling by company insiders has hit extremes as well. It is the perfect trifecta. Whether the perfect trifecta becomes the perfect storm (again) for investors is yet to be determined.

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

What I said last week still stands, and I would apply 3 interpretations or scenarios to the current extreme readings in the "Dumb Money" indicator:

"1) This is a bull market, and as we know, it takes bulls to make a bull market. Extremes in investor sentiment - just like over bought signals - are irrelevant.

2) Even though prices may be higher over time, the market is likely to consolidate (i.e., trade in a range) over the next couple of weeks; referring back to figure 1 and the 2003 time period, we note that the market actually went sideways for about 13 weeks following the extremely extreme extremes in investor sentiment. I suspect that this will be the most likely scenario for now.There will be a bid under the market. It will be tough to short or bet against this market for the foreseeable future.

3) The last scenario is that the current extremes in investor sentiment will mark the price highs in the major indices leading to the mother of all fake outs. This scenario is still very much on the table, but with an expected bid below the market, I don't see the market making a sudden reversal anytime soon. Market tops are a drawn out affair!"

For those who haven't read my "stuff" before, one of my favorite aspects of the Rydex data is the amount of assets in the bullish and leveraged funds versus the amount of assets in the leveraged and bearish funds. Not only do we get to see what direction these market timers think the market will go, but we also get to see how much conviction (i.e., leverage) they have in their beliefs. See figure 2 a daily graph of the S&P500 (symbol: $INX) with the Rydex leveraged bulls (green line) versus the leveraged bears (red line) in the lower panel. Typically, we want to bet against the Rydex market timer even though they only represent a small sample of the overall market.

Figure 2. Rydex Bullish and Leveraged v. Bearish and Leveraged

We note that the number of those market timers that are bullish and leveraged is once again very extreme (2.52 times) relative to the bearish and leveraged cohort. Since this started occurring on a regular basis on August 4 (or 9 trading days ago), the S&P500 is down over that period time. Yes, it is down only 1.5 points but what an accomplishment that is in this very bullish environment!!!

Our last look at sentiment comes from Insider Score, which is a service that provides information on company insider buying and selling utilizing a proprietary algorithm. See figure 3, which is a weekly chart of the S&P500. The indicator in the lower panel is Insider Score's "entire market" score, and this score is wrapped in trading bands. The current value is now outside the lower band and 2 standard deviations below the mean. This suggests significant insider selling.

Figure 3. Insider Selling/ weekly

There were 3 other prior and noteworthy extremes over the past 6 years of data, and these are noted with the black vertical lines. They were: 1) November, 2004; 2) August, 2005; and 3) November, 2006. Two other things about insider buying and selling are noteworthy. One, insiders continued to buy the dips during the early stages of the bear market in November, 2007 and January, 2008; they had no clue as to what was ahead. So sometimes insiders can get it wrong. Two, the current value on the Insider Score data is significantly below (i.e., increase in selling) the value seen in April, 2008 and September, 2008. These time periods are noted with the gray ovals over the price bar and led to major flushes in the markets.

Over the past 3 months every technical or fundamental signal to sell the market has been a reason buy. The bulls will tell you that this is just the "wall of worry" necessary for stocks to go higher or this is how bull markets act. All that may be true, but really, this is also just nonsensical dogma. On the other hand, the data would suggest that this is not the time or place to be making that big bet on the long side. From my perspective, there are better risk adjusted opportunities ahead.

And finally, at this point in time, it is too early to say whether the perfect trifecta will turn into the perfect storm.

The "Smart Money" indicator is shown in figure 4. 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 4. "Smart Money" Indicator/ weekly