This past week the S&P100 options (i.e., the OEX put call ratio) hit an extreme in that the number of puts exceeded the number of calls by a wide margin. The OEX put call ratio is thought to represent the large money or smart money, and with puts exceeding calls, this is being interpreted by some as a sell signal. After all, why would the "smart money" be looking for protection?
Monday, November 29, 2010
The morning news notes as prepared by TL...South Korea, Ireland, Germany faces tough choice as Spain wobbles, initial jobless claims from last week, Black Friday, Bush tax cuts, White House deficit reduction commission, inflation in emerging markets, and Fed to become more hawkish in 2011.
Saturday, November 27, 2010
It was only 2 weeks ago that the "dumb money" indicator and Rydex market timers were bullish to an extreme degree and company insiders were selling shares at a clip that had not been seen in 4 years. In most instances, these are bearish signals. The exception would be the scenario where too many bulls actually leads to a bull market. This is what happened in 1995, 1998/ 1999, 2003 and 2009. Will this scenario be repeated in 2010? It is seeming less and less likely, and if this is the case, then it is worth repeating what I have stated for 3 weeks in a row: "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."
Monday, November 22, 2010
The morning news notes as prepared by TL...10 year Treasury yields, QE2 criticism, WSJ looks at Japan's experience with QE, Gallup's Job Creation Index, and the Irish bailout.
Saturday, November 20, 2010
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."
Posted by Guy M. Lerner at Saturday, November 20, 2010
Friday, November 19, 2010
We are all familiar with the market adage that "hope is not a strategy". However, let's acknowledge that it is the expectation that "things" will be better in the future or the hope that today's economic data points will lead to better times are what drives prices higher. So to invest in the markets you got to have some belief or hope that you have it right.
Thursday, November 18, 2010
Wednesday, November 17, 2010
The morning news notes as prepared by TL...a fund to bailout those in foreclosure?, Irish debt crisis, the Fed's defense of QE2, banks return capital, deficit panel to publish findings, US budget deficit, and muni's see largest 1 day sell off since 2008.
Tuesday, November 16, 2010
The morning news notes as prepared by TL...retail sales for October, banks and foreclosure, California pushing muni bonds, is a weaker Dollar good for business?, Fed's dual mandate under attack, and Treasury30 year yields highest since May.
Monday, November 15, 2010
With investors extremely bullish and company insiders extremely bearish and with the indicator constructed from the trends in gold, crude oil and yields on the 10 year Treasury flashing extremes, I am once again reminded of the robot from the hit 1960's TV show, "Lost In Space". When the boyish Will Robinson was in peril, the robot would fling his arms up and down and announce in robot voice: "Danger,Will Robinson, danger!" Historically, these set of market conditions should not be ignored. 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.
The morning news notes as prepared by TL....comments from Gary Shilling, comments from Richmond Fed president Lacker, comments from James Grant on the gold standard, the benefits of open trade outweigh the costs, US home buyers can borrow more cheaply than the government, "anti - QE2" trade, muni - debt markets, QE3 anyone?, Greenspan on "Meet The Press", cigarettes, global warming and currency wars.
Saturday, November 13, 2010
Friday, November 12, 2010
This is the Rydex Report from November 9, 2010, which was sent to subscribers of our Premium Content service on Monday night. The data has not changed all week.
There are two dynamics going on in this market. Call it force versus force. It is the overbought, over bullish and over valued market that should rollover versus the buyer of last resort, the Federal Reserve. And there can only be one winner.
Thursday, November 11, 2010
It was only a week ago that I was looking at the Dollar and saying: "The inability of the Dollar to bounce when are investors are extremely bearish suggests that oversold has become more oversold. This is the definition of a strong down trend." This week, prices have reversed rather dramatically, and in all likelihood, the Dollar will end the week with the down trend reversed and the intermediate term trend looking up.
The morning news notes as prepared by TL....why the gold standard wouldn't work, Greenspan oped, G20 summit, comments by Morgan Stanley's Stephen Roach, Deutsche Bank CEO likes QE2, and Ireland's and Portugal's sovereign debt crisis.
If you were paying attention, you would have noticed that this past week's sentiment update did not contain the "Smart Money" indicator. This wasn't an oversight on my part but a purposeful omission. With NYSE data difficult to obtain, the "smart money" is now solely constructed from the S&P100 Options (i.e., the OEX put call ratio). S&P100 options are thought to represent the large money trader. As it is constructed now (i.e., only SP100 put call data), this indicator has had little value since the 2000 bull market top. In essence, the "smart money" isn't so smart, and we find that this is just a good bull market indicator.
Wednesday, November 10, 2010
The morning news notes as prepared by TL....USA gets downgraded by the Chinese, gold continues is post QE2 climb, international back lash to QE2, US homeowners cannot take advantage of low rates, new risks for "munis", Fed to grant approval to banks to give dividends, inflation/ food worries, G20 summit, and NFIB small business optimism index.
Monday, November 8, 2010
Although the Federal Reserve would like us to believe that inflation remains low, the markets say otherwise. As of Friday, our composite indicator that looks at the trends in gold, crude oil and yields on the 10 year Treasury is at an extreme value. See figure 1 a weekly chart of the S&P500.
For the week ending November 5th, we find that the "dumb money" is extremely bullish, that insiders are increasing their selling, and that the Rydex market timers are nearing extremes in bullishness. We are closing in on extremes in bullishness which should be a bearish signal.
Friday, November 5, 2010
The morning news notes as prepared by TL....unemployment report, backlash against QE2, MCHP earnings report, Europe jumps back to the top of the list of tail risks, and the Fed to allow healthy banks to increase their dividend.
Thursday, November 4, 2010
The morning news notes as prepared by TL....QE2, mortgage refinancing applications, higher bonuses for Wall Street, Bernanke's OpEd in the Washington Post, IMF chief says world economy to grow at 3-4% in 2011, and China repeats that US Dollar printing is a big risk.
Figure 1 is a weekly chart of the PowerShares DB US Dollar Bull (symbol: UUP). The indicator in the lower panel measures investor sentiment towards the US Dollar, and this data comes from MarketVane.
Wednesday, November 3, 2010
Ok, the elections are over. QE2 is in the books. The roadmap that I wrote about 2 weeks is coming together the way I saw it back then -- higher yields are in our future.
The morning news notes as prepared by TL....ADP payroll, election results, Goldman Sachs: efforts to help economy will likely spur Dollar weakness, FOMC rate decision today, Dubai World, "Doubts Cloud Gold's Bright Future", inflation adjusted price of gold, and home ownership rate since 1965.
Monday, November 1, 2010
Figure 1 is a weekly chart of the S&P500, which shows the composite sentiment indicator in the middle panel. The indicator is constructed from the "Dumb
Money" and "Smart Money" indicators, Rydex asset data, and InsiderScore total market value of insider buying and selling. These are the set of indicators that I highlight in our weekly round up on sentiment. 11 unique data points are utilized in this indicator.
The morning news notes as prepared by TL....QE2, hedge funds are at their most bullish since April 2010, Treasury with $20 billion AIG gain, recent terrorist activities, rich nations face increased debt burden, Merkel on Ireland, Portugal, and Spain....Ted Sorensen dies.
Our indicator that is constructed from the trends in crude oil, gold, and yields on the 10 year Treasury did NOT make it into the extreme zone last week. This was due to some end of the week weakness in crude oil and Treasury yields. Therefore, the strategy that combines the 40 week moving average with this filter did NOT yield a sell signal. The indicator is shown below.