Sunday, April 11, 2010

Investor Sentiment: 4.11.10

The equity markets continue their ascent on decreasing volume, and the only rationale for such persistent bullishness is the unwillingness of investors to embrace the current rally. Is this the "wall of worry" or fool hearted speculation? The data would suggest the latter as newsletter writers to Rydex market timers to option traders are "all in".

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. The "Dumb Money" indicator is bullish to an extreme degree, and this implies that a price move is either nearing its end or the ascent of prices is surely to show. This is our expectation 85% of the time. As discussed last week, not only is the current value extreme it is also less than prior extremes suggesting decreasing bullishness despite higher equity prices. This remains a noteworthy, yet unconfirmed, negative divergence.

Figure 1. "Dumb Money" Indicator/ weekly

And now this from the Department of Broken Records....

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/ 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. From the InsiderScore weekly report we get the following: transactional volume decrease as the quarter closed but insiders continue to sell with conviction and buy sporadically.

Figure 3. InsiderScore Entire Market/ weekly

Figure 4 is a weekly chart of the S&P500. The indicator in the lower panel measures all the assets in the Rydex bullish oriented equity funds divided by the sum of assets in the bullish oriented equity funds plus the assets in the bearish oriented equity funds. When the indicator is green, the value is low and there is fear in the market; this is where market bottoms are forged. When the indicator is red, there is complacency in the market. There are too many bulls and this is when market advances stall.

Currently, the value of the indicator is 67.35%. This is the highest value in 9 years. Values greater than 58% (arbitrarily chosen) are associated with market tops, and the red dots over the price bars indicate such.

Figure 4. Rydex Total Bull v. Total Bear/ weekly

Shorter term Rydex measures continue to suggest excessive bullishness. This data, which has proved to be very actionable, is available as Premium Content. This service should help you improve your market timing.


robo said...

Another chart we need to keep an eye on - ISE equity only index 10 day.


Guy M. Lerner said...


thanks for the link!

D-man said...


Polish market becomes resilient as well, following the US "resilience". On marketwatch today...

Signs of times :)

Guy M. Lerner said...


Hi there as well

Is there an ETF for Poland

Lots of resiliency all around these days....

D-man said...

Guy, no idea. I just shorted the EEM today; you have this vehicle with a bit more leverage but you know this for sure

Retail people are very enthusiast about emerging markets (see towards the end of this presentation). So hey, who knows :)

D-man said...

I wanted to point to the fact that today we got a BB crash on the VIX (quite low reading today), which is the first BB crash since the 11th of January; that day a rather violent correction started (it was during earnings season as well); will the Market sell the news again?$VIX&p=D&b=5&g=0&id=p42502447656

Guy M. Lerner said...


Thanks for the info

Lots of complacency and glee on CNBC