Several weeks ago I watched a video where Maria Bartiromo of CNBC interviewed Gary Shilling of A. Gary Shilling and Company. Bartiromo was soliciting Shilling about his opinion on the housing market, and as you can imagine, Shilling was less than sanguine, and in fact, he was calling for further declines in prices. Shilling was clearly at odds with other analysts, and Bartiromo asked (and I paraphrase): "You realize your opinion is at odds with all the other analysts out there?". Shilling's response (and I paraphrase again): "What good is an opinion if it is just consensus?"
I love it!
On Monday and Tuesday of this week the markets were one banana peel from falling off a cliff. I am sure bulls were wondering (and sweating) what they were doing holding stocks at such lofty levels. I am sure many were thinking, "why didn't I sell last week?". Ahh, then comes Wednesday and Thursday, and we can all breathe a sigh of relief as stocks moved back to their highs. Whatever actions the bulls wish they had taken on Tuesday are gone.
So what has changed? From a sentiment perspective, nothing has changed. The bulls remain bullish to an extreme degree and corporate insiders actually increased their selling over the prior week. I realize that my opinion is not consensus, but now is not the time to "breathe that sigh of relief". It would seem to me that taking action is more prudent, so I still stand by what I wrote on August 13, 2010: "If the market hasn't topped out already, it should do so within a couple of percent of the recent highs. Rallies should be sold and stops tightened up. The market is prone to sudden sell offs. There will be better risk adjusted opportunities to buy in the future."
If my opinion changes or if the data changes or if the price actions causes me to re-evaluate that opinion, I will be the first to let you know.
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) Market Vane; 3) American Association of Individual Investors; and 4) the put call ratio. The "Dumb Money" indicator remains in neutral territory ever so slightly.
Figure 1. "Dumb Money"/ weekly 
Figure 2 is a weekly chart of the S&P500 with the InsiderScore "entire market" value in the lower panel. From the InsiderScore weekly report: "Despite losing 1.5 market days to Thanksgiving the pace of insider selling continued at an impressive clip last week. Sellers outnumbered buyers 3-to-1 and the number of sellers fell -15% week-over-week compared to a -32% decline in the number of buyers." The current "entire market" value is not extreme on a relative basis but clearly, it is extreme on an absolute basis.
Figure 2. InsiderScore "Entire Market" Value/ weekly 
Figure 3 is a weekly chart of the S&P500. 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 59.0%. 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 
Improve your market timing with Premium Content from TheTechnicalTake.
The Premium Content service is the best $104 you will ever spend on market research. The daily report is meant to keep you on the right side of the market and improve your market timing. That's 40 cents a day!
Even in this confusing market environment, The Premium Content service has been useful in identifying trading opportunities. The indicators have functioned as expected!!!
To learn more about this service click here: Premium Content
To subscribe to Premium Content click here: Subscribe
