Investor Sentiment: There Is Always Hope
In a low volume, holiday shortened week that ended with a bang of selling pressure, the "dumb money" has yet to give up hope.
The "Dumb Money" indicator is shown in figure 1. The "Dumb Money" indicator looks for extremes in the data from 4 different groups of investors who historically have been wrong on the market: 1) Investor Intelligence; 2) Market Vane; 3) American Association of Individual Investors; and 4) the put call ratio.
Figure 1. "Dumb Money" Indicator/ weekly
The "Dumb Money" indicator remains in the bullish extreme zone, and typically, this is a bearish signal. Since hitting bullish extremes 9 weeks ago, the S&P500 is down 3.5%, the NASDAQ 100 is up 3.7%, and the Russell 2000 is down 2.7%. Despite all the talk of "green shoots", new bull markets, and "all the bad news is priced in because the markets know all and see all", the equity markets really haven't gone anywhere over the last two months. There is always hope.
And I guess when you look at a weekly chart of the S&P500 (see figure 2), there is still hope for the bulls as prices remain above the down sloping 40 week moving average and above the key support level at 876. It really is that simple.
Figure 2. S&P500/ weekly
Of note, resistance is at the confluence of 1) the down sloping blue trend line; and 2) the highs of the negative divergence bar (S&P500= 942.45); this is the price bar marked in pink. In a warning sign last week, the S&P500 closed below the lows (S&P500=903.78) of this negative divergence bar suggesting weakness ahead. To read more about how the highs and lows of negative divergence bars tend to define price ranges, click on this link. Nonetheless, the real battle will be at the 876 level.
The "Smart Money" indicator is shown in figure 3. The "smart money" indicator is a composite of the following data: 1) public to specialist short ratio; 2) specialist short to total short ratio; 3) SP100 option traders. The "smart money" is neutral.
Figure 3. "Smart Money" Indicator/ weekly