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Investor Sentiment: Bounce Mode
The investor sentiment data is consistent with a market that is in bounce mode. Following the late January sell off, investors really did not become too bearish. The subsequent bounce over the past 2 weeks has once again created a sense of complacency across our various metrics. In light of this, it will be difficult for the major stock indices to climb to new highs. Despite the recent short term strength, it is still my contention that we will need to go lower before heading meaningfully higher. I discussed the research behind this claim in the article, "Why I Think We Need To Go Lower Before Going Higher". The "Dumb Money" indicator, which is shown in figure 1, looks for extremes in the data from 4 different groups of investors who historically have been wrong on the market: 1) Investor Intelligence; 2) Market Vane; 3) American Association of Individual Investors; and 4) the put call ratio. The "Dumb Money" indicator is neutral. Figure 4 is a weekly chart Figure 4. Rydex Total Bull v. ***** I ask myself one simple question every week: is this the
Figure 1. "Dumb Money" Indicator/ weekly
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The "Smart Money" indicator is shown in figure 2. The "smart money" indicator is a composite of the following data: 1) public to specialist short ratio; 2) specialist short to total short ratio; 3) SP100 option traders. The Smart Money indicator is neutral to bearish.
Figure 2. "Smart Money" Indicator/ weekly
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Figure 3 is a weekly chart of the S&P500 with the InsiderScore "entire market" value in the lower panel. Insider trading volumes remain light although selling is picking up as prices on the major indices rise.
Figure 3. InsiderScore Entire Market/ weekly
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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 indicator is headed towards a bullish signal (suggesting too
many bears) but it is not there yet. Once again, this suggests investors have
bought the dip early, and in all likelihood, they will be disappointed as it
will take lower prices to bring about a more lasting bottom and tradeable rally.
Total Bear/ weekly
market environment that will take me from here to there? From a sentiment
perspective the answer is "no". The "smart money" and
insiders have yet to turn bullish, and at best, only some of the shorter term
Rydex data would suggest that the bounce may be with us for a few more days.
This is not the environment where I will be making the big bet.
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Smart money does not look very smart.
I bought the dip to trade it when sell orders reached 36:1 in the NYSE. That is a much better indicator of panic.
I also follow sentiment and shorted the market when the bull bear spread reached 3,33 in Investors Intelligence.
Right now I sold out and will wait and see.
This investor sentiment is in "haymaker" mode.
Cross my path and I find you work for Fraud Street you get blasted.
It's that simple you welfare queens.
I warned of this bounce before it started.
Further updates:
http://www.zerohedge.com/forums/zero-hedge-forums/equity-forum
not very impressed with these indicators...
Didn't I see this on pragcap or something?
"buy the dips" -Leo
I like this format. Conclusion/forecast/opinion right at the top, then items considered, with very brief discussion of each. Businesslike.
But Jim Cramer said this market is a Buy.
The "smart" money looked pretty smart at S&P 1,300 and 1,400, huh?
It looks to me like the dumb money was bearish before the crash (the green dips in Chart 1), whereas the smart money was generally bullish (the blue spikes in Chart 2). I guess a chart can say whatever you want it to. Like George Bush, after hearing that he had a 38% approval rating, saying,"Well that just goes to show that more than half the people support me."