Saturday, January 9, 2010

Investor Sentiment: No Comment Needed

As you would expect, very little has changed with regards to investor sentiment. Therefore, no comments are necessary. In fact, sentiment has become so extreme and been this way for the better part of 6 months that sooner than later the market will correct, and the indicators will have regained their "predictive" value. It is like a broken clock being right at least twice a day. It will happen. Until then, the trend is your friend.

The "Dumb Money" indicator, which is shown in figure 1, 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. The "Dumb Money" indicator shows that investors remain extremely bullish.

Figure 1. "Dumb Money" Indicator/ weekly

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 indicator is neutral to bearish.

Figure 2. "Smart Money" Indicator/ weekly

Figure 3 is a weekly chart of the S&P500 with the InsiderScore "entire market" value in the lower panel. Due to the holiday week, insider trading volumes were light.

Figure 3. InsiderScore Entire Market/ weekly

Figure 4 is a daily chart of the S&P500 with the amount of assets in the Rydex Money Market Fund. When the value is low, investors are fully invested and remain complacent; when the value is high, investors are fearful and seeking safety of the money market fund. The current value is just off the lowest value since the March, 2009 rally began.

Figure 4. S&P500/ Rydex Money Market Fund/ daily


Dave Narby said...

Hi Guy,

This last chart especially is why you are one of my favorite analyists. Thanks for sharing your excellent work.

If you look at each yellow line you've drawn from the March lows, it shows new highs being made, but less and less price difference between from one high to the next... All the while J6P is getting deeper and deeper into the market.

I would not want to be long here.

Vladislav said...

Thank You!!!
What about Rydex Bullish and Leveraged v. Bearish and Leveraged ?
My Best Wishes!

Guy M. Lerner said...

Dave: Great photo! and Thanks for the compliments

What is J6P?

My thoughts on your observation are this: as markets rise and investors feel that it is getting away from them, people are more likely to chase the market higher; that is, the dips get shorter and shorter and I think this what we are seeing

Vlad: You are welcome! The Rydex Leveraged Bull to Bear is currently less than two; as of thursday there appears to be a single isolated bearish bet; in other words, the bull leveraged funds are still high and the bear leveraged funds jumped by about 40% in one day (i.e, my interpretation of an isolated bet). Nonetheless, buying power is drying up......

Kevin said...


If the Rydex Bull/Bear drops to the levels you've shown in a big rally, could you let us know?

Great work as usual


Onlooker said...


J6P = Joe Six Pack