Investor Sentiment: Split Decision

In aggregate, investor sentiment is neutral.  However, when looking at the data in greater detail, we note that company insiders are neutral while the "smart money" is bullish and that the "dumb money" is neutral while the Rydex market timers are bearish (i.e., bull signal).  Similar data on opposite ends of the investing spectrum yields a somewhat confusing yet neutral reading.

The "Dumb Money" indicator (see figure 1) looks for extremes in the data from 4 different groups of investors who historically have been wrong on the market: 1) Investors Intelligence; 2) Market Vane; 3) American Association of Individual Investors; and 4) the put call ratio. The "Dumb Money" indicator remains neutral for 2 weeks after 3 weeks of showing excessive bearish sentiment (i.e., bull signal).  The current bounce has followed the expected script.

Figure 1. "Dumb Money"/ weekly

The "Smart Money" indicator is shown in figure 2. This is calculated utilizing data about SP100 options (or $OEX put call ratio), which is thought to represent large traders.  The "smart money" is bullish. Previously, the "smart money" calculations utilized data from the NYSE; this data is no longer publicly available.

Figure 2. "Smart Money"/ 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: "Insiders continued to show a bearish bias, but in a surprise move it was the Financial sector which dragged sentiment further down, resulting in a four-month low for the Weekly Score."

Figure 3. InsiderScore "Entire Market" Value/ 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 49.41%. Values less than 50% are associated with market bottoms.

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

Improve your market timing with Premium Content from TheTechnicalTake.

The Premium Content service is the best $104 you will ever spend on market research. The daily report is meant to keep you on the right side of the market and improve your market timing. That's 40 cents a day!

Even in this confusing market environment, The Premium Content service has been useful in identifying trading opportunities.  The indicators have functioned as expected!!!

To learn more about this service click here: Premium Content

To subscribe to Premium Content click here: Subscribe