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Investor Sentiment: Marking Time

thetechnicaltake's picture





 

If a market top is developing, it will take several weeks to do so as the bullish extremes of the last several months need to be unwound. I have been stating the following for several weeks now: 1) the greatest gains are behind us; 2) the markets are to trade in a range with an upward bias; 3) there will be a bid under the market; 4) it will be tough to short or bet against this market for the foreseeable future. When I first wrote those words on August 8, 2009, the S&P500 was at 1010.48; on Friday, the S&P500 closed at 1016.40. For the last 4 weeks, the S&P500 has been in a 60 point range. There is little follow through on either side of the equity markets. Outsize bets in either direction are not warranted. However, sector bets may still prove fruitful with commodity based sectors and ETF's outperforming.


The "Dumb Money" indicator is shown in figure 1. The "Dumb Money" indicator 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" remains extremely bullish.
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" is neutral.

Figure 2. "Smart Money" Indicator/ weekly
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Company insiders continue to sell their shares to an extreme degree. See figure 3, a weekly chart of the S&P500 with the Insider Score "entire market" value in the lower panel.

Figure 3. Insider Buying v. Selling/ "Entire Market"/weekly
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Our last look at investor sentiment comes from the Rydex bullish and leveraged (green) v. the Rydex bearish and leveraged (red) assets. See figure 4 a dailychart of the S&P500. After starting the week very bullish, these market timers threw in the tool as the market moved lower. Of course, if they had stayed only a few more days, Friday's lift would have bailed them out.

Figure 4. Rydex Bullish and Leveraged v. Rydex Bearish and Leveraged/ daily


 

 


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Mon, 09/07/2009 - 12:00 | Link to Comment MinnesotaNice
MinnesotaNice's picture

Nice and concise... I like your style... get to the point without a lot of fanfare... refreshing...

Mon, 09/07/2009 - 19:36 | Link to Comment thetechnicaltake
thetechnicaltake's picture

tanks!!

Tue, 09/08/2009 - 08:24 | Link to Comment Hephasteus
Hephasteus's picture

I would just like to say that it appears the market doesn't want outsized takes. What if it can't get what it wants?

Mon, 09/07/2009 - 02:50 | Link to Comment Anonymous
Mon, 09/07/2009 - 01:26 | Link to Comment NHL
NHL's picture

Looking at the historical data and charts that you've posted, it seems that the dumb money is making $$$ hand over fist. Spoke to  a lot of retail investors and they are making $$$$ from the run since March. Spoke to the pro and the picture is mix.

Mon, 09/07/2009 - 19:35 | Link to Comment thetechnicaltake
thetechnicaltake's picture

There have been times in the past --1995, 2003, and now 2009- where the "dumb money" just got bullish and the market just kept going higher; it happens. During these times the "smart money" is likely to underperform.  But when you look at the price cycle or cycle from fear to greed and back to fear, the markets will clearly perform better -that is gains can be made a lot easier when the "dumb money" is bearish (i.e., bull signal).

Mon, 09/07/2009 - 01:08 | Link to Comment Anonymous
Sun, 09/06/2009 - 22:47 | Link to Comment Bubby BankenStein
Bubby BankenStein's picture

Thank you.

Sun, 09/06/2009 - 22:06 | Link to Comment Anonymous
Sun, 09/06/2009 - 19:48 | Link to Comment Anonymous
Sun, 09/06/2009 - 19:01 | Link to Comment Anonymous
Sun, 09/06/2009 - 18:00 | Link to Comment 3greenlights
3greenlights's picture

Nice presentation, triple T.

"Outsize bets in either direction are not warranted."

Good words of caution.

 

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