Wednesday, May 13, 2009

Sentiment Update

I didn't get around to updating the sentiment picture from the weekend data, so I will just give a quick recap here since there have been some further notable readings.

First, I had mentioned in recent posts that seeing increased small lot size call options bought to open would be something to watch for. As of this past week that call buying jumped to its highest level since last May. The put buying had already been significantly lower, but the combination of the increased call buying and lower put buying has pushed the ratio to levels once again not seen since last May. The ratio is now very close to the upper standard deviation band that has very nicely marked points at which the market has had trouble making further gains over the short to intermediate term even in bull markets.

Also corporate insiders (which tend to be a smarter money group) are net selling into this rally as of the last couple weeks and more heavily so than any time since mid 2007. Do they have a better gauge of future earnings and economic conditions? Probably.

I have touched on the "Smart Money" and "Dumb Money" confidence levels from in recent weeks. As of last Friday's close the spread had increased even further from recent levels creating a disparity greater than any during this bear market. These are basically real money gauges - not "opinion" type indicators. So we know that the better market timers are showing decreasing confidence in and commitment to the market with each new high, while the poor market timers are speculating heavily on further gains.

The sentiment picture is nearing "as good as it gets" levels (from my opinion) to bet on a reversal in trend. Until this week, the technical picture was not confirming that really at all. However, the last 4 days have beat up a few sectors pretty hard, putting the market in a tedious technical spot.

This morning as the market pulled back, selling was met mid-day with strong buying interest. So as of now, things seems to still be holding together. The next couple days should be pivotal in determining if this rally is basically topped out or not.


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