Last week's bullish "call" was good if not obscene. I know we want and expect the NASDAQ100 to go up 7% every week, but somehow I cannot imagine it becoming the norm even in this Fed distorted environment. Nonetheless, this week, investor sentiment still favors the bulls despite strong gains over the past two weeks. The "dumb money" and Rydex market timers remain bearish, and these are bull signals. Sell offs will likely remain contained as there will be willing "dip" buyers at lower prices.
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: "Transactional volume was low last week as the vast majority of insiders continued to be prohibited from buying or selling until after their companies report Q3'11 earnings. Buyers did, however, continue to outnumber sellers by a more than 2-to-1 margin, a positive sign considering sellers typically have the upper-hand during low-volume periods."
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 46.81%. 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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