As expected investor sentiment remains extremely bearish. Typically, these are bull signals, or rather that is how it works out about 80% of the time. Every so often there comes a time when it just doesn't matter what the indicators are saying, doing or even indicating, and the concerns that investors have are well founded. This is starting to look like one of those times. As I have been stating for several weeks now, a close below support while investor sentiment is bearish (i.e., bull signal like now) is not a good sign, and a weekly close below SP500 1133.65 has the potential to lead to a waterfall decline. This week's close on the SP500 was 1131.42. Yeah, it's only a couple of points below but rules are rules. I would rather protect my capital than take my chances. I will reconsider my stance if the SP500 has a weekly close greater than 1133.65. And this is how I roll!
This is a bear market and I have been stating such since August 9. The best advice I can give is contained in this article: "SP500 Trading Models and Sell Signals (Part 4)." In this article, I used 3 very good SP500 trading models to make 1 super SP500 model,which we tested on data going back to 1973. Currently all 3 models are out of the market. If you did absolutely nothing -- just sat on your hands -- and waited until the next buy signal from one of the models, it is very likely that you would have given up little in the way of gains. Having followed that advice, it is also very possible -- about 30% chance - that you would be missing a crushing bear market. Bottom line: you don't have to be a hero or pick the bottom to prosper in the markets.
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: "In an unusual twist, there was late quarter movement in sentiment - from Neutral to Bullish - as the number of buyers increased slightly and the number of sellers fell - 73% week-over-week. We typically don't get a strong sentiment reading at this stage in a quarter because activity is so constrained by lock-ups. This past week, however, it was apparent that insiders - at least the ones free to trade - were willing to put some money to work and unwilling to take money off the table. There was strong buyer-to-seller ratios across most sectors and scattered actionable buying. Transactional volume should continue to decrease over the next two to three weeks as more companies lock-up insiders ahead of 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
Let me also remind readers that we are offering a 1 month FREE TRIAL to our Premium Content service, which focuses on daily market sentiment and the Rydex asset data. This is excellent data based upon real assets not opinions! We have a new 1-click sign up process! Credit cards are not required.
