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Investor Sentiment: The Rubber Band is Stretched
The “dumb money” is extremely bearish. Insider buying is occurring at a very high clip and it slightly exceeds those levels seen at the March, 2009 lows. The Rydex market timers (our last hold out) have finally turned bearish. These kinds of extremes in sentiment have not been seen for 12 months. The rubber band is stretched, and I am bullish.
As I have detailed recently and over the past couple of years, the best time to get long the market (on average) is following 2 consecutive weeks of bearish sentiment. This is week #2. (See this article: “What do the Numbers Say?”). The numbers support the notion that you should be buying when others are bearish, but please understand that it doesn’t always work out that way. Now I state these caveats not to hedge myself or the analysis, but to get the readers to understand that this is no holy grail. (See this article: “Are you Looking for the Holy Grail?”) There are risks. In any case, I would rather be a buyer here than 15% ago, and I believe the data is on my side.
Several other points are worth noting. One, failed signals are an ominous sign of significantly lower prices. I would consider the recent bull signal (see the June 12, 2011 commentary) a failed signal (see “A Floor has Been Set”), and the result speaks for iftself. Two, this is a bear market until proven otherwise; therefore, this is a counter trend trade.
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: "A week after our strongest quantitative sentiment signal, the Industry Buy Inflection, was triggered across all tracking groups, market-wide insider sentiment actually improved, remaining extremely bullish in the process. The number of buyers jumped 50% and the number of sellers fell -5%. Some of the increase in buying is due to the last big spate of earnings announcements unlocking insiders, but that doesn’t account for the decrease in sellers."
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 49.45%. 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
Let me also remind readers that we are offering a 1 month FREE TRIAL to our Premium Content service, which focuses on daily market sentiment and the Rydex asset data. This is excellent data based upon real assets not opinions, and it has been very helpful as the market has been forming a top.
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anyone who reccomends buying this sick fraudulent system is a SICK INDIVIDUAL
who ever wrote this is just a shill for the system who probably works at cnbc
Short covering?
The trend is down, down and down with a few swings up. If you think you can time the downs and ups good luck.
looks really bad now.. Rob Poulos
Interesting comments but not too many from traders who actually have a system. Losing it all and listening to your broker? Sentiment and dumb money? The only money that is dumb is when you guess what the market is going to do in the short term. Sentiment helps but to what degree and what scale (who knows). The global bear market resumption has begun again and how far down it goes is anyones guess. If you use excessive leverage a poor risk management especially at times like these then you will likely be wiped out regardless of whether you are on the smart money side or dumb money side. Use stops and use proper risk management. Most of all you better have a system that accounts for volatility.
I dunno about that analysis: we are in a long-term bear market, with no convincing 'bullish narrative' (bubble) except in the one commodity that becomes bullish when things are falling apart.
This is not a conventional post-war recession with that 'Vee-shaped' recovery. W/ crude trading at a business- killing $107/barrel the only 'survivors' are those without a compelling growth story.
The biggest stories are the decline in capital w/ equity flowing into M2 and 'safety'. The other is, do bankrupt institutions fail or bail? How can that be bullish?
This has to be one of the naivest articles I've ever seen on ZH. I wonder how long this guy thinks that old style TA will continue to work? All of the premises have been kicked out of the foundation.
Sometimes rubber bands just snap and break
oh yeah with the whole world bankrupt and commodities still at vey high levels why wouldn't you be bullish
I mean you'd be crazy not to snap up some SOCGEN or other bankrupt bank shares at these prices
talking to some people m any think this is a greAT BUYING OPPORTUNITY
hardly the sort of thing one finds at true bottoms is it
anyone who thinks this is going higher without QE3 is a moron
The "dumb money" is selling to pay their bills. The "dumb money" is trying to survive. They can't piss away what little they have left on +/-5% gyrations caused by algos and daytraders.
Gold, oil and drillers...that's what my broker is now telling me. He used to tell me to buy banks but now said stay away from all financials and stick to oil and gold...and some miners like FCX and some drillers like NBR.
GL!
that marks the top in gold, yes?
How is this moron still in business? i guess by getting other morons to buy his newsletter or whatever it is he's selling...
That's how most of them do it.
No thanks, I will buy silver.
I have a problem with this phrase: "Investor sentiment". Since when are "investors" controlling this market, where the average holding period is about eleven seconds, and over 70% of "investment" decisions are made by binary algorithms instead of emotionally-besieged cerebral cortexes?
Just asking.
On the other hand, this market does look like something that's rubber-band powered.
....Like model airplanes, certain kinky condoms, and theBamster.
well i'd say major market indexs look like falling stars,,
NEVER IN MODERN HISTORY DAX fall ~30% in one month.. germany economy is best run in world.
and goverment forecast zero deficit in next year... yet falling like stone..
alx
has nothing to do with Germany, everything to do with Euro group sovereign debt; interconnected economies.
eally..???
so dax fall 1.5 times more than SPX/NASD, but somehow Euro against $ didnt move at all..
since may euro/$ traded in band 1.4-1.5..
so point is .. stock market = real economy.. german economy is real one, and there's no much manupulation here.. currency rates are budget/trade deficits issues..
so euro/$ says despite all hoopla taht europe will broken any minute, PROBLEMS IN USA ARE WAY WAY WAY WORSE..
alx
alx
haven't you noticed? Its a mad race to the bottom. Nothing "Logical" about the market these days!
Every body is shit scared. As with all market manipulation, nobody knows the true status of bank balance sheets; accumulated derivative plays etc.... off balance sheets which could unwind in domino style and bring down normally "healthy banks" in mad spiral.
Love articles that come out after the market is already up 1%
Until every dip buyer gets slayed like bears over the last 2 1/2 years and many daytraders get caught in lock limit moves against their position we will not find a bottom.
The market wasn't bullish oin the way up either but it went up. There are too many bears at the moment just like before.
look at idiot charts.. TYPICAL CONFIRMATION BIAS,,
idiot just puo data that suits his view..
he didnt put chart of federal budget deficit, he didnt put chart of number of people on FOOD stamps..
he did put chart number of building permits (ALL TIME LOW)
so, why to be bullish? did market discount that WHOLE 2010-2011 year of fiscal stimulus went into drain..?
alx
Why, the markets are open....it must be time to BUY, BUY, BUY.
I love technical analysis that speaks about dumb money. This type of sentiment works great in a BULL market. I'm sure in '29 and '32 and '87, there was lots of stupid money sitting on the sidelines ignoring charts, sentiment, and the markets in general. Of course the smart money was buying into the bounce that never came, except of course for the brokers who jumped out of windows and bounced off the concrete 20 stories below.
Those that followed the hysterical chants of fund managers and fee tranced brokers, LOST IT ALL! What ever happened to BILL MILLER of Legg Mason??? Gone, Baby, Gone. I believe I saw him on CNBC just a couple months back (disclaimer: I sometimes watch CNBC while doing laundry so I can watch the tape) and you will never guess what he said. Banks are a BUY, BUY, BUY and he was loading up.
Volatility is at times a great way to make some green, but I would guess most of us have learned by now, just how hard that is to do. Some of us have even lost our ass a time or two zigging when we should have zagged. So, here we have a chart telling us to buy? I've been to the Lion's den before during dotcom and I got out alive and much the wiser. Some people either haven't learned their lesson yet, or they never will.
Maybe the phrase dead broker bounce should replace dead cat bounce. Regardless, LMFAO and +1!
OK, so what has changed in macroeconomic perspective?
Have all the morons gave up their bonuses back, lowered taxes and regulations to allow economy work?
Is white collar crime prosecuted ?
Has they delivered the stuff to Venezuela?
Has EU, USSA, Japan solved debt crisis?
If not, why should anyone bother about some technical indicators?
#The rubber band is stretched, and I am bullish.
typical 1 weel look ahead view..
BULLISH ON FUCKING WHAT ? US FED GOV WILL ISSUE 2 TRLN MORE DEBT STARTING 2011-1OCT...
guys, dont fall into this bullshit..its not THE bottom.. look at DAX 30% off the top,,, SPX less 20%..
1st a bottom will be at 1050+-.. then we will trade for couple months... next support is 950..
so real question is WILL WE SEE SPX UNDER 900 OR 900-950 is THE BOTTOM OF 2011..?
alx
alx
THE bottom for SPX is below the last bottom of 666.
Do I hear sub-500 calling?
"Crisismode, 333 is on line one holding."
.
When does Ben make his market case for QE3? So far I havent seen it....this 15% drop is not call for panic and mayhem in the streets, in fact most people dont even know markets are down at all. Ben needs to make collapsing markets a HEADLINE and constant panic topic on CNBC for Jacksons Cornhole!
Finally a sensible article. Am I actually reading this on ZH?!?!?!
"The rubber band is stretched, and..." has lost its elasticity; it's about to break.
Buy!
Hey buy all you want BeerGoggles! I dont see anyone stopping you!
I agree. Bullish = Sensible. The people on CNBC told me so, and they're really well groomed, so they must know what they're talking about.
Anyone with bearish views on equities is probably just a terrorist who hates our freedom to Buy! Buy! Buy!