Sentiment Report - October 19, 2011

Sentiment Report for October 19, 2011

Posted 10/19/11 7:20 PM ET by Jason Goepfert

Top Stories In Sentiment		Smart / Dumb Money Confidence
We got the expected pullback on Wednesday. The session didn't trigger anything notable among our indicators. Rydex mutual fund traders have picked up their interest in stocks, at least through Tuesday's close. Assets in the Nasdaq 100 fund are a bit troubling. Seasonality into year-end will be positive, especially after option expiration.		The Smart Money is 54% confident in a rally. The Dumb Money is 50% confident in a rally. (click chart for larger version)

Things to keep in mind:

10/18: High TICK, Apple lead to downside

Archive >>

Short-term Risk Level: 5

Pretty much the same story as yesterday - the price pattern and history of pulling back after Apple earnings suggests a multi-day pullback is most likely. This is still within an overall positive multi-week timeframe, so we'd expect the next set of oversold readings to lead to another rebound.

Sentiment

Traders in the Rydex family of mutual funds on Tuesday rushed into the Nasdaq 100 long fund. Assets have jumped more than 40% just this month.

There is now 45 times more cash invested in that fund than the inverse fund, which is on a par with other peaks over the past year. The other times it jumped to this kind of extreme were 2/8/11, 4/27/11 and 7/12/11, all of which led to multi-week slides in the Nasdaq 100.

On the bright side, the Bull Ratio in the leveraged Nasdaq 100 funds remains very low, so we're not seeing these traders become overly bullish (or bullish at all) in the leveraged funds, unlike the 3 occurrences noted above.

A few weeks ago we looked at assets in the money market compared to all the index and sector funds. At the time, it showed a historic level of uncertainty.

That was the peak in the ratio, at 157%. It currently resides at 73%, back to neutral territory (click chart for larger view).

Price Action

The S&P 500 futures have gone up, down, up, down, all by more than 1%, over the past four days.

That's happened 7 other times. The next day was up 2 times, down 5 times, with an average of -0.6%. There was no particular bias after that.

Seasonality

Nothing really notable. We looked at seasonality into year-end in a Data Brief, which is positive, but other than that there isn't anything out of the ordinary short-term.

Miscellaneous

Nothing notable.

Intermediate-term Risk Level: 7

No change in the Summary from October 6th.

Things to keep in mind:

10/18: Surge in Nasdaq Up Volume

10/12: Strong price persistence

10/04: Rydex traders flee to cash

09/13: SMI breaks long-term trend

09/09: Very low penny stock volume

09/02: Low ratio of cash to equities

08/05: Multiple mini-crash stats

Archive >>

General Equity Market Indicators

On August 8th, we registered so many extremes among our indicators that the percentage of those in bullish (for the market) territory very nearly reached 50%. Stocks usually do well during the next 1-3 months after extremes like that, and they did once again. The current re-test of those lows has pushed the % at a bullish (for the market) extreme back above 40%, which has led to positive results going forward the vast majority of the time, though obviously that's still below the extremes we saw in August.

More history: Short-term Score Long-term Score Indicators At Extremes

Indicators At Extremes

Bearish for equities	Bullish for equities
Rydex Bull Fund Asset Flow TRIN - NASDAQ TRIN - NYSE CSFB Fear Barometer Up Issues Ratio - NYSE Up Issues Ratio - NASDAQ Up Volume Ratio - NYSE Up Volume Ratio - NASDAQ NYSE Available Cash	* Price Oscillator - S&P ISE Sentiment Index VIX Transform Fidelity Sector Breath Insider Insights Buy/Sell Ratio OTC Volume ROBO Put/Call Ratio Sentiment Survey - Investor's Intelligence Sentiment Survey - Market Vane Sentiment Survey - Consensus, Inc. Sentiment Survey - Hulbert Sentiment Survey - NAAIM Managers AIM Model
* New extreme See all equity indicators

Sector Sentiment

Go to sector breadth charts

The mini-crash on August 3rd shoved every sector into deep oversold territory, with not even the defensive sectors spared. We can't recall another time in the past decade where all sectors were that far into oversold territory, and they went into deep oversold territory again in early October. The impressive rebound off those lows has pushed several sectors into overbought, which is the first time we've seen this since April (which was obviously in a different market context).

Currency / Commodity Sentiment

See all currency/commodity indicators

The volatility over the past month has led to several extremes in trader positions, especially in the currencies. Traders have become massively short the Euro and Pound, and lately small speculators have taken to heavily shorting the Canadian and Aussie Dollars.. We're also seeing some overly pessimistic extremes in Silver, and some of the softs like Wheat and Cocoa.

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