Sunday, March 6, 2011

Investor Sentiment: No Change

Bullish extremes in investor sentiment continue to persist, and company insiders remain lukewarm regarding their own company's shares.  I believe last week's variant analysis continues to be correct as waning (but still extreme) bullish sentiment shows that investors are less enthusiastic about the market's prospects.  In other words, we have seen the extremes in sentiment which means the market is rolling over forming an intermediate term top

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.   This indicator remains in the extreme zone suggesting too much bullish sentiment.  

Figure 1. "Dumb Money"/ weekly

Figure 2 is a weekly chart of the SP500 with the InsiderScore "entire marketvalue in the lower panel.  From the InsiderScore weekly report we summarize: "SP500: Strong Sell Bias Remains, But Pace of Sales Slowed" and "Russell 2000: Sell Bias Still Exists, But Buyers Began To Emerge".

Figure 2. InsiderScore "Entire Market" Value/ weekly  

Figure 3 is a weekly chart of the SP500. 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 70.10%.  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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