After last week's selling pressure, investor sentiment remains ugly and bearish. This is expected. Nonetheless, prices on the SP500 still remain above our "line in the sand" at 1133.65. This level was tested and so far has held. This sets up a low risk entry for those looking to go long. But understand this is bear market, and capital should be protected vigorously. A weekly close below this key level, while sentiment is bearish, could possibly lead to a waterfall decline (see: "Put Your Hard Hats On").
For those looking for absolutes, the question as always is which way will the market go, and in the absence of a crystal ball, I don't think anyone knows. However, there must be some clues out there, and surveying the investing landscape, there are a lot of assets and sectors of the market being taken to the woodshed and shot. Commodities hammered. Emerging markets bludgeoned (for 12% last week). Copper crushed (for 16% this week alone). China slammed. Financials killed. There is a message in all of this selling - isn't there? Regardless, the major indices still remain above support albeit barely. I guess it ain't over until it is over. Maybe this is the kind of despair we need to see before the market turns around - is this hopeful thinking too?
In summary, it is ugly but with prices still above support, there is hope.
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: "Sentiment remained Neutral as the number of buyers fell -8% week-over-week and the number of sellers increased 29%. Buyers were still in the lead, outpacing sellers 6-to-5, but there was an obvious lack of conviction on both sides of the trade. As was the case the prior week, no sector or industry flashed a strong signal in either direction and though there was some actionable buying and selling on a company-level, there was little common ground - outside of a cautiously neutral play area - to be found amongst insiders. We should see a measurable decrease in insider trading volume this week as companies begin to close their trading windows and insiders start getting forced to the sidelines until after their companies' respective earnings announcements."
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 46.87%. 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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