It is the summer doldrums. Volume is pathetic. There isn’t much to say that has not been said already. The “smart money” is neutral. The “dumb money” is really starting to believe. In general, this is not a good recipe for higher prices. Market tops take time, and this one appears to be no different!
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 is neutral.
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: “The first big volume week for insider transactions during Q3’12 was a tale of two sentiments. During the early part of the week, as the market moved lower, insiders displayed a Slight Buy Bias. As the market rebounded, however, insiders began to show a Modest Sell Bias. The result was Neutral, but obviously slipping, sentiment as one of our key macro readings, the Weekly Score, moved close to Sell Bias territory.”
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 69.08%. 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