Investor Sentiment: Confusion Reigns
It is a crazy mixed up market. First, we have the worst Thanksgiving week since 1932, and this is followed by the best week since March, 2009. The losses in August and September are reversed by a blockbuster October. The pundits are having a field day reminding us that a bear or a bull market is imminently around the corner. And for all this nail biting what do we have? A market that is down 1% for the year. I am sure the day traders are loving it, but for most us of “normal” folk, there is way too much noise.
And I guess this is the issue for most investors: is there meaning in the noise? Or to put it another way: can we put order to all this disorder? Isn't that what market analysis is all about? But even the orderly can be a bit dis-orderly at times, and market indicators that measure investor sentiment are a bit all over the board at the present moment. The “dumb money” got more bearish last week despite those gains that promise a new bull. Company insiders are back to buying. What are they seeing that the rest us don't? Typically, they are buyers at lower prices not as prices rise. Then you have the Rydex asset data, and these market timers remain moderately bullish.
Yes, confusion reigns, and I suspect confusion will continue to reign. Investors have put their hopes on the Fed, IMF, China (or whom or whatever) and a European bail out. Can't someone save the global economy? It is their job, so they will try. This is juxtaposed to a market that is vulnerable and an economy on the brink of recession. Higher prices only means one thing: the central bankers of the world have increased their commitment to do whatever it takes AND investors believe that it is true. Lower prices means that these very brilliant stewards of our economy have failed in their efforts to convince investors. There really is nothing else you need to know, and it is really quite simple despite all the confusion.
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: “Market-wide insider sentiment improved for the second consecutive week as the number of sellers fell -45% sequentially. The 1.5 market days lost due to the Thanksgiving holiday generally does not have a big impact on transactional volume, thus the dramatic drop in the number of sellers – which was accompanied by only a -10% decline in the number of buyers – was more likely related to falling valuations than any other factor. The level of buying was high – with nearly 2X the 52-week average of weekly buyers – but certainly nowhere near the levels we saw in mid-August, when our strongest quantitative signals flared.”
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 57.74%. 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 Daily Sentiment Report (formerly Premium Content), which focuses on daily market sentiment and the Rydex asset data. This is excellent data based upon real assets not opinions! We have a new 1-click sign up process! Credit cards are not required.
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