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The Ultimate in Investor Sentiment

Figure 1 is a weekly chart of the SP500. The indicator in the lower panel is a composite of the "dumb money", Rydex asset data, and insider buying indicators that we show every Sunday in our weekly wrap up on investor sentiment.

Figure 1. SP500/ weekly
SP500 weekly chart

It is always best, in my opinion, to have as many points of light shining on an issue as possible, and what we see from this composite indicator is that the indicators have yet to line up. That is, the "dumb money" indicator is giving a bull signal, but corporate insiders are neutral and the Rydex market timer remains very bullish. It should be noted and as pointed out in Sunday's sentiment wrap up, corporate insiders are buying, and the buying is the most since August, 2010. However, a buy signal has not been generated yet. I suspect that further selling (i.e., lower prices) or more volatility will have corporate insiders buying. At that point, 2 out of 3 of our sentiment indicators will be flashing buy signals.

Several anomalies are worth noting, but I do not believe that they affect the current course of action -- which is to be bullish when others are bearish. Corporate insiders were buying the dips throughout the 8 month 2007/ 2008 market topping process. In addition and like now, the Rydex market timers did not confirm the bullish signals coming from the "dumb money" indicator and corporate insiders.

This 3 indicator look goes back to 2004, and it is clear from the data that the best bottoms leading to the most sustainable price moves occur when all 3 indicators are in alignment.


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