Saturday, November 20, 2010

Investor Sentiment: Happy Thanksgiving

It is hard to envision how any one data point will matter in this holiday shortened week.  Nonetheless, looking beyond next week, I will repeat what I stated last week: "If the market hasn't topped out already, it should do so within a couple of percent of the recent highs.  Rallies should be sold and stops tightened up.  The market is prone to sudden sell offs.  There will be better risk adjusted opportunities to buy in the future."

If you bought the hype and bought the market two weeks ago, you remain hopeful that the highs aren't in.  If you sold down some of your positions, you are wondering if you did the right thing.  If you shorted the market over the last week, it is now gut check time as the short term downside momentum has given way to several days of upside action.  You don't want to be road kill.  No matter where you stand, it seems that very little will be decided next week.  The over bullish markets will still be with us as we start December.

Have a Happy Thanksgiving!

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 dipped into neutral territory ever so slightly.

Figure 1. "Dumb Money"/ weekly












Figure 2 is a weekly chart of the S&P500 with the InsiderScore "entire market” value in the lower panel. The value is well below the lower trading band suggesting an extreme selling bias amongst insiders.  From the InsiderScore weekly report:  "The blizzard of insider sales continued last week as Russell 2000, Technology and Materials insiders, amongst others, kept sentiment deep in Bearish territory. That said, it appears that sales may have, at least, temporarily peaked. Selling reached its most fevered pitch on or about November 5, the day the market hit a two-year high, and the magnitude - if not necessarily volume - of sale transactions has lessened since then."

Figure 2. InsiderScore "Entire Market" Value/ weekly












Figure 3 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 58.47%. Values less than 50% are associated with market bottoms.  Values greater than 58% are associated with market tops.
 
Figure 3. Rydex Total Bull v. Total Bear/ weekly












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1 comment:

Baltyc said...

Do you track natural gas or UNG? Very interesting what there will be - fundamentally long term there is down trend, but where this upside coorrection will over?...