Like last week, the “dumb money” remains extremely bullish and the “smart money” is bearish. What is also certain is that the bulls remain in control, yet the best gains are clearly behind us. What is uncertain is what happens when the music stops – will you find a chair to sit in or will you need a parachute? The 2010 liquidity love fest ended in the May 5 flash crash, and the 2011 version saw the SP500 drop 18% in 3 weeks. I ask myself everyday: if I am buyer today will I be able to get out of this market safely and without a parachute? Without a pullback to buy in to, I have my doubts.
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 bullishness.
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: “Insider selling levels remain elevated, however, conviction lessened slightly this past week and there were modest increases in the number of buyers and companies with buying. The biggest change occurred within the S&P 500, where a bust of buying was followed up this past week with a near record number of weekly sellers. The Materials sector was one of the leading sources of selling and buying within the Banking industry decreased suddenly and dramatically.”
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 71.72%. Values less than 50% are associated with market bottoms. Values greater than 58% are associated with market tops. It should be noted that the market topped out in 2011 with this indicator between 70% and 71%.
Figure 3. Rydex Total Bull v. Total Bear/ weekly
Sites That Link to this Post
- Monday links: multiple elephants | Abnormal Returns | March 5, 2012
- Monday links: multiple elephants | March 6, 2012