Introduction

We have beat this to death for over 3 months now.  This has been and remains a NEUTRAL market environment.  Since February 7 when our fundamental model issued a sell signal in the face of constructive technicals, the markets (SP500, NASDAQ100, Russell 2000) have been flat to down in aggregate.  There is no edge.  It’s buy the dips and sell the rips.  While the highs are being sold, the dips are of shorter depth and duration, and I believe this is a sign of a topping process.  But before we get to that eventuality, the market needs to sell off maybe below our key pivot of SP500 1848.29.  This would likely lead to the next buy signal.  Until this happens, we are just biding time.

To view all those Weekly Sentiment Reports since February 7 where I outline our NEUTRAL market position,  please follow this link.

Looking at the data in aggregate, we note that the “Dumb Money” indicator (figure 1) dipped into bearish sentiment territory only 5 weeks.  This was not a bull signal by our reckoning as the depth and duration of bearishness was not significant enough.  The “smart money” (figure 2) has a bullish bias, and so does the $VIX as the closing price is below two prior pivots.  However, the $VIX dipped below 12 last week, and throughout the past 18 months the $VIX has been unable to break this level.  In other words, when the $VIX hits 12, selling has typically ensued. In summary, the sentiment indicators have a bullish skew, which we recognized about a month ago.  This still fits in with our NEUTRAL call as it has been my belief that the market does not have the power to move appreciably higher, but owing to the bullish skew in the sentiment data, the dips should remain tolerable.

Before getting to this week’s charts, it is worth mentioning that the Rydex Asset Data was not available for download this weekend.  Therefore, these charts will not be presented until we get the updated data.  In addition, the Sentimeter, which is our most comprehensive sentiment indicator will not be shown as well as the Rydex data is used in its construction.

Dumb Money/ Smart Money

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. The indicator shows that investors are NEUTRAL.

Figure 1. The “Dumb Money”

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 is in positive territory, driven by buying at sub-$2B market cap companies and an unusual jump in buying at S&P 500 companies. The most important trends to emerge are buying a beaten down small-cap Technology and Healthcare companies; multi-insider buying events at companies hit hard by earnings/guidance announcements; a renewed buying interest by Banking insiders; and, a slowdown in 10b5-1 trigger-price Unusual Events versus recent quarters. The Financial, Consumer Staples and Healthcare sectors are showing the most positive sentiment, with the former two sectors seeing Industry Buy Inflections, our strongest positive macro signal, generate this past week. The Industrial Goods sector is showing the least positive sentiment.”

Figure 2. InsiderScore “Entire Market” value/ weekly

$VIX

Figure 3 is a weekly chart of the SP500 with the $VIX data in the lower panel. The black dots on the $VIX data are key pivot points, which are areas of support and resistance. The current resistance key level is at 14.08 on the $VIX; the current support level is 12.22. This current range in the $VIX defines the range in price that we should continue to see. Look for the market to probe the lower levels of $VIX support; this is the range and where short term traders want to be sellers.

Figure 3. $VIX/ weekly