• 138 days Could Crypto Overtake Traditional Investment?
  • 143 days Americans Still Quitting Jobs At Record Pace
  • 145 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 148 days Is The Dollar Too Strong?
  • 148 days Big Tech Disappoints Investors on Earnings Calls
  • 149 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 151 days China Is Quietly Trying To Distance Itself From Russia
  • 151 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 155 days Crypto Investors Won Big In 2021
  • 155 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 156 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 158 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 159 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 162 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 163 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 163 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 165 days Are NFTs About To Take Over Gaming?
  • 166 days Europe’s Economy Is On The Brink As Putin’s War Escalates
  • 169 days What’s Causing Inflation In The United States?
  • 170 days Intel Joins Russian Exodus as Chip Shortage Digs In
How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

  1. Home
  2. Markets
  3. Other

Investor Sentiment: More Issues

Add extreme selling by corporate insiders to last week's list of worries. This "smart money" is selling to a degree last seen February 18, 2011. Following this signal, the SP500 spent the next 6 months going sideways before falling 18% over a 4 week period in August. Of course, the market was "saved" by Operation Twist. Last week's issues included: 1) only modest extremes in investor sentiment at the recent bottom; 2) lack of consensus amongst the various sentiment data; 3) the lack of both bulls and bears in this market; in essence and by our measures, investors are just moving to the sidelines. The problem with this market is that it can't seem to sell off enough to produce a sustainable rally.

Despite these sentiment headwinds, the market has found a floor. Holiday trading, hope and the expectation for a fiscal cliff resolution, and fading the "dumb money" are some of the reasons. But the rubber band isn't stretched too far. There aren't any bears to produce short covering. However far the rally goes, it will likely be a part of what will eventually be recognized as a market top.

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 is neutral. If the indicator had stayed bearish for two consecutive weeks, it would have been a bullish signal.

Figure 1. "Dumb Money"/ weekly
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: "Market-wide sentiment continues to move along a negative path as our key tracking metrics are now showing Sell Bias or Strong Sell Bias signals. Some of the selling is likely a reaction to the possibility of higher capital gains tax rates going into effect next year, particularly sales by 10% Owners. Selling volumes presently look very similar to those of December 2010, when the potential for higher taxes the following year was also looming. Qualitatively, we've recently seen activity that we believe is likely tax-avoidance related and the volume of sales by 10% Owners, many of whom are private equity investors who could be hit very hard by increased tax rates, is very high."

Figure 2. InsiderScore "Entire Market" value/ weekly
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 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 59.97%. Values less than 50% are associated with market bottoms. Values greater than 58% are associated with market tops. It should be noted that the market topped out in 2011 with this indicator between 70% and 72%.

Figure 3. Rydex Total Bull v. Total Bear/ weekly
Rydex Total Bull versus Total Bear Weekly

 


TheTechnicalTake offers a FREE e-newsletter: HERE
Visit TheTechnicalTake website: HERE

 

Back to homepage

Leave a comment

Leave a comment