This page has been archived and commenting is disabled.

Investor Sentiment: Are Investors Rushing Towards the Edge of a Cliff?

thetechnicaltake's picture




 

Last week, I stated that "higher prices should be supported by increasing number of bulls, and this would be a signal that a sustainable rally, that everyone so desperately wants, is unfolding." So this past week, the SP500 gained about 1.6% and bullishness increased dramatically both in the Rydex data set and with the "dumb money" indicator. Yet, despite these positive developments to recruit more investors into the bullish camp, much work needs to be done. Volume is the probably the biggest issue, and the lack of volume means lack of investor conviction. So while there are more bulls, they are chasing prices higher with one hand already on the eject button. My data still suggests a mixed sentiment picture, and at this stage of the rally (relative to the time elapsed from the October lows), prices and bullish sentiment should have been much greater. The fact that the bulls have yet to take the reigns of this market suggests caution. These are still not the makings of a sustainable rally. This still looks like investors are rushing to the edge of a cliff as opposed to the promise land and nirvana of a bull market.

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) MarketVane; 3) American Association of Individual Investors; and 4) the put call ratio. This indicator shows neutral sentiment.

Figure 1. “Dumb Money”/ weekly

 

Figure 2 is a weekly chart of the SP500 with the InsiderScore “entire market” value in the lower panel. From the InsiderScore weekly report: "Our key sentiment readings all flashed Neutral signals as transactional volume across the market was low due to the holidays and trading windows closing at many companies as Q4'11 ended. Volume will be seasonally low for the next three weeks as insiders are pushed to the sidelines with their companies preparing earnings announcements."

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 61.49%. 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

TheTechnicalTake offers a FREE e-newsletter:

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 01/09/2012 - 05:28 | 2046068 DymanicDoug
DymanicDoug's picture

not even close shineola.....West Texas tea over 120...thats the story..gotta be over 80-85  Big Ass Scam

Mon, 01/09/2012 - 05:16 | 2046066 Shineola
Shineola's picture

The smart money is in food and ammo. Try buying necessities with stock certificates when TSHTF in the Straits of Hormuz. BIG ASS WAR COMING!!!

Mon, 01/09/2012 - 08:25 | 2046142 Zero Govt
Zero Govt's picture

i don't recall Starbucks Cafe Latte Grande stopping at any point during either the illegal Iraq war or Afghanistan

...why do you think Lattes' are under threat if American-Jews stir up an Iranian conflict?!!

Mon, 01/09/2012 - 08:25 | 2046139 Zero Govt
Zero Govt's picture

dub post

Mon, 01/09/2012 - 00:38 | 2045800 rosiescenario
rosiescenario's picture

Boy, I have been an investor for more than 40 years and this current market has become baffling. One thing that is very different now is that the market appears to move non-correlated stocks in the same direction...either up or down depending upon if it is a risk on or risk off day. Personally that appears to be due to the HFT algos driving the market and this is something very new. Each day the bets are all placed on either red or black. In addition the small investor appears to be out of the market and that was a buffer that helped smooth things out. Currently my holdings are in smaller or junior pm mining stocks that I have identified as being very grossly under valued. The thinking is that longer term their value will surface, being either recognized in the market or through their being bought out by a larger mining company. On "red days" these stocks usually get swept along with all the others and I add to positions. I have not sold any yet as they are still low in value.To me this is the only way to play the market now. I have never trusted the sell side analysts and I am not a stock trader so I do not use technical stuff. My holding periods over my entire investing history have usually been for many years since it usually takes that long for an under valued play to get recognized....they are usually under valued because no one follows them or cares about them or they are in an out of favor industry.

Mon, 01/09/2012 - 02:50 | 2045983 Freddie
Freddie's picture

Hope and Change gramps.  Our Allah has an Alice in Wonderland party with Hollywood's libtard vermin while seniors and baby boomers retirements are wiped out.  More Hopium.   And gramps "eat your damn peas!"

Sun, 01/08/2012 - 23:00 | 2045578 ebworthen
ebworthen's picture

I would approach any use of historical data, indicators, and formulae with caution; this is not our Father's or Grandfather's Buick.

In other words, the "dumb money" may not be as dumb as it once was; and a lot of that money is leaving the market altogether.

These two charts would seem to indicate a little more bearishness versus neutral:

http://www.wallstreetcourier.com/v/ci-gf-dumb-money-indicator.htm

?

I'd bet a lot of individual investors have a finger on the "eject" button.

Mon, 01/09/2012 - 04:39 | 2046045 Sudden Debt
Sudden Debt's picture

I hear a lot of other stuff to. There are a lot of people who think this is 2009 all over again where the markets will pop.

They don't know about QE1 and 2. They don't know that QE3 will come very late this year.

They only look at the historic charts and say: I'm going to make a killing in a few months if I "by low now".

So I bet there's going to be plenty enough of dumb money that will flock in with the first spike that last a week.

 

 

Sun, 01/08/2012 - 23:09 | 2045596 thetechnicaltake
thetechnicaltake's picture

eb:

I don't disagree with what you say; the only thing that could change the current outcome is that investors continue to accept risk based upon the belief that the Fed has more QE in store or that they will continue to back stop the markets

Sun, 01/08/2012 - 23:36 | 2045658 ebworthen
ebworthen's picture

Good point.

A round of QE and reflated DOW on low volume may just convince some to ride it out or buy back in, ecpecially if at the same time European travails boost the dollar and U.S. markets.

Thanks for the response.

Do NOT follow this link or you will be banned from the site!