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Investor Sentiment: Poorly Positioned
After notching a high earlier in the week for this rally that started in March, 2009, the S&P500 went on to lose over 5% in 3 trading days. This puts the S&P500 below the November 13, 2009 closing high. In the short term, "everyone" expects the proverbial bounce giving pause to bulls and bears alike, but make no mistake about it, investors remain poorly positioned to weather a sell off.
And oh for the record, this is what I wrote in the November 15, 2009 commentary on market sentiment:
"Considering the sentiment picture on its
own, we can sum up by asking one question: is this the market environment that
will take you from here to there? I believe that answer is "no".
Markets can always go higher confounding the pundits, but the high odds play according to the sentiment
data is
that the major equity indices are in a topping process. This implies a trading
range at best. There is risk of a down draft as markets "fueled" by
the proverbial "liquidity" are prone to quick sell offs. The outlier
trade is a market blow off or a spike in prices, and I do not rule this
possibility out because of the ongoing downtrend in the Dollar Index. It is
possible but it is not the high odds play."
Figure 4. Rydex Bullish and Leveraged v. Bearish and Leveraged/ daily But let's be honest that was then, and here we are now down 5% in 3 days. Furthermore, I contend I didn't do anything smart anyway as we all know a broken clock is right at least twice a day. Right?
Should we expect further down side? According to the sentiment data, the answer is "yes". There is no indication that anything has changed: the "dumb money" remains extremely bullish while the "smart money" and company insiders continue their indifference. The Rydex market timers -i.e., those with a short term time frame - continue to overestimate their ability to get to the exits or identify the top before the next trader. Despite the sell off, these folks are "all in again" expecting a short term bounce. A bounce may develop and statistically it should, but from a longer term perspective, it is still my belief that the next best buying opportunity will occur when the "dumb money" indicator turns bearish (i.e., bull signal). We are a ways from that occurring, but I am sure it will coincide with talk that thethe pullback that has started this week has gone on longer and deeper than most would like. In all likelihood, it should get investors to think that the market is rolling over to such a degree that the current cyclical highs will never be revisited.
This is just one man's opinion!
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 shows that investors remain 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 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. Due to the start of earnings season, insider trading volumes remain light.
Figure 3. InsiderScore Entire Market/ weekly
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Figure 4 is a daily chart of the S&P500 with the amount of assets in the Rydex bullish and leveraged funds versus the amount of assets in the leveraged and bearish funds. Not only do we get to see what direction these market timers think the market will go, but we also get to see how much conviction (i.e., leverage) they have in their beliefs. Typically, we want to bet against the Rydex market timer even though they only represent a small sample of the overall market. As of Friday's close, the assets in the bullish and leveraged funds were greater than the bearish and leveraged by 2.31 to 1, and this ratio is shown in the lower panel. Since the rally began in March, 2009, ratios greater than 2 have tended to mark short term tops.
Lastly, because I cannot help myself and as I don't want to raise the ire of the market gods, I only briefly present the following video:
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well.. market will rally on monday - thats what market does on monday. then may be tuesday, but will roll over and go down Wed or Thursday...
DOW/SP500 daily charts are bearish, weeklies are now in a weakened uptrend.
My earlier bearish warnings for stocks continues.
My earlier USD uptrend and EURO downtrend warnings continue.
In early 2007 I warned of an impending stockmarket crash.
I confirmed a bottom by early April 2009.
From mid 2009 onwards, I warned of a USD rally (it has much further to go too)
The uptrend since March 2009 has been a bear market rally contained within a much larger bear cycle that started in 2000.
UPDATES:
http://www.zerohedge.com/forum/market-outlook-0
I see that happening also.
WAKE UP........... Neo!
RATM www.youtube.com/watch?v=B1T8xgHdMEM
Bank run bitches!
prince bandar is missing! so is tony blair's mind! so is the gold from china's reserves (not even 5% what were you thinking leaving your kung-fu at home?)! woops china, what did you get yourself into?! where is dick cheney? Caribbean cruise perhaps?
Asia is on their knees, and Europe's lame ass is up next. 'merca ain't bringing home any bacon. looks like the beginning of famine.
DJ 9,200 by March....and on the way down load up on goldsilver, solar tech, commodities, whatever...good luck.
so which is it?
1) gold 1000, dow 1000
2) gold 5000, dow 5000
3) gold 10,000, dow 10,000
4) gold 15,000, dow 15,000?
*
clue: rhymes with "hey"
After five years of serpentining between dj 7,999 and dj 19,999, I think the end result will be DJ 20,000 SUNNY STUFF 15,000. Before that reality sets in for everybody, I think they will devalue the doelarr to gold, catapolting the everlasting metal to $20,000 an oz. silver in this scenerio btw...
can't stop a train. you just can't!
Well the true value of the DJ should be about 4000 or so at most so my prediction is we will see 5500 sometime later this year. I almost think after March there will be govt/fed PPT backing off actions taken to try and get people to move into Treasuries since they have to sell so much.
perfect visual / sound-byte.
thanks for the sentiment take, t3.