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Investor Sentiment: The Line in the Sand
In this no patience world we live in, I am sure investors have declared the rally that started two weeks ago as being dead. After all, the market didn’t really go anywhere this past week, and it actually sold off hard towards the end of the week. However, history tells us that it takes about 7 weeks on average for extremes in sentiment to resolve into a negative or positive outcome. So with investor sentiment still very extreme, it seems too early to pull the plug on this rally. However, the two week bounce has served one purpose, and that is put a floor or “line in the sand” under this market. A weekly close below 1133 SP500 (especially while investor sentiment is bearish) would be a very ominous sign leading to a waterfall decline.
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 extreme bearish sentiment, and this is a bull signal.
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: “Insiders continued their bullish stance, however, for a second consecutive week the level of buying decelerated; and, more importantly, for the first time since mid-May, we saw a volume-adjusted acceleration in selling. At this juncture, we’re not concerned by the trending as buy-levels are still well above normal and sell-levels are still well-below normal. Likewise, while conviction among buyers has definitely waned since earlier this month, we’re not seeing very many pockets of strong selling conviction."
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 indicatoris 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 46.80%. 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
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somehow I doubt that this article
is going to sell you a whole lot of subscriptions ....
...specially not after today ....
Hidebound bullshit.
Right we are not in normal times. I am not wondering if we see more deeper lows in europe. If i look at the us future charts i can´t belive which levels i see in the moment: Magnificent head.
" This indicator shows extreme bearish sentiment, and this is a bull signal. "
in normal times may be yes...... but we are not in normal times are we ? far from it in fact...
in fact " normal " times have been and gone............
I mean if the bull charged there wouldn't be anything there?
Giddyup is good shit
A bit too much of the hopey hopey. Me thinks giddyup is working in his system.
hft's + algo's + free taxpayer bailout monies + corrupt regulators + fiber optic trunk lines = one fucking rigged market. if there are some fucking morons out there that follow these bullshit charts, then go the hell all in. you'll definitely get what's coming to ya. you better be gettin your asses into some physical au & ag before tomorrow morning cause we got us a rocket to ride!
5000 Dow by the end of OCT
This gent from FORMULA CAPITOL says that it will take 6 to 18 months for the benefit of QE2 to be felt and has called for Dow 20,000.
http://finance.yahoo.com/blogs/daily-ticker/james-altucher-dow-going-20-000-don-t-142821798.html
I think I found his FORMULA.
http://en.wikipedia.org/wiki/Lysergic_acid_diethylamide
I don't know what the author smokes, but I like how it works.
What can possibly save Euroland? It is disintegrating before our eyes and US in in unemployment trap suggesting more deficits. Yes multinationals can survive longer , but how much longer without consumer demand? Meanwhile politicians are looking for cover not to be blamed for financial meltdown . Obama' speech will set market tone for about one day followed by steady decline through remainder of 2011. All the trend lines and charts no longer apply because we are in uncharted waters with time running out with old economic tools totally ineffective. Even Roubini has resorted to fantasy suggesting Italy just needs a change in government, low interest rates in Europe and more stimulus in US--- Nonsense .
"Nu par Ruski" program. "If it ain't nailed down we're bringing it back. And if it is nailed down we're brining a hammer."
So how did buying into that market bottom in Oct 2008 work out for anything short-term?
I think the major fallacy here is in treating the market as a whole like an individual stock. Yes, insiders generally know when their stock is a good bargain and just happens to be depressed. But insiders have no special knowledge of macro issues, and right now the markets are moving as a whole, it doesn't matter how good any particular stock is. The markets are trading on fear and insecurity right now, and that doesn't turn on a dime.
and note too the "bullish" sentiment readings (i.e. too bearish) in the early stages of the 2008 decline. things just got more bullish as the market lost 40% of its value. that looks like where we are now. maybe a little pop but i think the best line is penetration of 1133 with weak sentiment support will bring a waterfall decline.
Bullish opinion unpopular on ZeroHedge
Film at 11
I'm still unfamiliar with the "dumb money concept." I like the idea of it of course. Perhaps you mean "taking candy from a baby" money?
http://www.youtube.com/watch?v=JR-Y45Vf-Ng&feature=player_detailpage
man, even that ain't easy anymore.
I have a relative who asks me all the time - what do you think the market is gonna do. This person thinks Money mag and Smart Money are the gospel. i told them in May that we are probably running out of gas. Told them again in late July that it was a classic head and shoulders bearish pattern. They don't listen. I tell them anymore to do their own research. Keep watching CNBC, follwing Jubak, Mish and all the other AH's like the Orifice of Omaha.
Isn't there a lag of weeks or months between insider buys and sells and when those transactions must be publicly reported? The Technical Take's graph of insider activity shows no time lag.
Even by regular Technical analysis, the "trend was broken" almost 3 days in one week.
The author is a complete stock pumping idiot. He is the part of the disease sickening America. He needs to GO!
Based on the comments so far it is pretty obvious that the consensus is bearish.
I've wondered why so many people give thetechnicaltake so much crap for rendering an observation. It's not like Phil at Phil's World shoveling his hyper-partisan Kiss-Amanpour's-Ass-We-Need-More-Government-Spending-Isn't-David-Axelrod-A-God BULLSHIT.
From where I sit it is an unbiased analysis. Take it or leave it. If he(she?) is right then why wouldn't the rally extend into October? Who wouldn't want to see the SPX test 666? Just seems too convenient for the bears.
Mish Shedlock is another AH that morns follow. Do your own analysis. I know a few guys who are pretty good but I do my own work. One guy is very good and I don't tell anybody about him.
Don't forget seasonality. The "Fall" Is Approaching...
"Dumb" money is going to win this time. The rally from the 2009 bottom was a Fed fueled growth of a rancid pus filled boil. This zit has popped!
+1
Bingo! The 2009 rally was all money printing and some bottom fishing. The poor public is so stupid. I bet a bunch bought Bank of America when Buffett did. The lying Omaha CS'er never told the poor sheep he has special convertibles preferred backed by Uncle Sam (Rothschild).
Rally? Are you kidding? With Eur-ripe down 5% we'll be lucky if the circuit breakers aren't popping off Tuesday 5 seconds post-open!
Sad to see that TheTechnicalTake can't even read his own charts correctly...
I heard a fund mgr this morning say we are in a confirmed Bear market and he is staying 40 % allocated to stocks, doesnt get much dumber than that.
IMO, the 401K crowd will stand frozen, unmoving, until their doom slaps them in the head.
To act now would be to admit that the past 20-40 years of their lives were built on lies. They WILL avoid that possibility.
Then, they'll look for someone to blame, and then, someone to punish.
Good times!
I think the 401K inflows are smaller than outflows. Many have stopped deducting for it, I think only 30% eligible now contribute, they need the weekly net paycheck. Recently the cash held by mutuals hit a record low barely above 3%, so waterfall selling is possible. I see they are holding Dow futures exactly @ 11,000.
"Insiders continued their bullish stance"
Why is Zerohedge reporting the opposite? Zerohedge keeps running articles that insider selling is 300 or 400 or 500 times as great as insider buying.
Or did this suddenly reverse and now insider buying is greater than insider selling?
Could someone clarify? Thank you.
I asked this before also. No-one answered but he has been reporting the exact opposite of the Tylers for a long time now.
TD is 99.9% bearish if you haven't noticed. Granted at present the Macro data is pretty bleak. But we no longer trade on fundamentals anyway right? Seems the most successful strategies right now are chase momentum or front run who .gov decides gets a pony this week.
My take is that TD mainly works the short side, arbs, and PM's and that is why he only posts bearish data.
This post if from thetechnicaltake and as such are his (or her) opinions and not those of TD.
personally, i think they just call 'em as they see 'em........the truth is easy to see when you clear your mind of what you thought you knew.....
oh and feel free to post the positive data....
Institutional investors ( i.e. pension funds ) have nowhere to go and they have a 7- 8% annualized nut to crack come hell or high water. You'll see conviction selling when the first of them gives the secret sign to unwind and book. It will not be as orderly an unwind as they may believe, though....more like a fire in the theater.
Well, just go "all-in" then. Application of this analysis to Japan's market suggests that the "dumb money" has been indicating a "rally" in the japanese market for 20+ YEARS! How's that working out for them again?
+10 All rallies depend on short-squuezes and buybacks, I don't like those odds of sustainability.