Saturday, April 23, 2011

Investor Sentiment: Waiting On the Fed

The sentiment indicators are not particularly revealing, but then again price on the SP500 really hasn't gone anywhere either for the past 3 months.  Maybe investors are waiting to see how much longer the Fed plans to keep the monetary spigots turned on full blast.  I guess we will have our answer this week.  Insiders are neutral, and the "dumb money" indicator is neutral as well.  Higher prices are likely to bring more bulls into the ring, and paradoxically to the normal contrarian point of view, this would likely be bullish for prices as it does take bulls to make a bull market.  Higher prices will lead to increasing bullishness until it doesn't.  These kinds of moves are generally seen in the late stages of a bull market, and they can be fast and exciting as they are fueled by short covering.  But until that happens, well there isn't that much to do.  All eyes and ears will be on the Fed.

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 is neutral. 

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: "There was very little change in sentiment week-over-week as insider activity was seasonally limited ahead of earnings season kicking into gear. Sellers outpaced buyers by a more than 2-to-1 ratio and there were only a handful of actionable transactions. Transactional volume will remain light this week as only a handful of companies (on a relative basis) report Q1'11 results and open trading windows. The Good Friday holiday, for which the market will be closed, will also limit action."
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 67.52%.  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

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

No comments: