Figure 1 is a weekly chart of the S&P500. The indicator in the lower
panel is a composite of the 4 sentiment measures posted
to this website every weekend: the "dumb money", the "smart money", company
insiders, and the Rydex asset data. It takes 13 data inputs to make this
one indicator!
When the indicator is at or below the red line, it suggests a combination
of overly optimistic investors or pessimism amongst the "smart money". Under
these conditions, equities will continue to grind higher, at best, or put in
an intermediate term market top. The red dots over the price bars are those
times when the indicator was at or below the red line on the chart. Figure
1 extends from November, 2006 to the present.
Figure 1. S&P500/ Investor Sentiment Composite
Figure 2 is the time period from 2004 to November, 2006.
Figure 2. S&P500/ Investor Sentiment Composite
In summary, this comprehensive look at investor sentiment suggests the obvious:
the best gains are behind us. Furthermore, in all but one occurrence since
2004, you were able to buy the S&P500 at a lower price within 20 weeks
of the initial signal.
If you would like to receive daily sentiment updates, then subscribe to our Premium
Content. We charge a nominal fee for this daily report that contains
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Disclaimer: Guy M. Lerner is the editor and founder
of The Technical Take blog. His commentary on the financial markets
is based upon information thought to be reliable and is not meant as investment
advice. Under no circumstances does the information in his columns represent
a recommendation to buy or sell stocks. Lerner may on occasion hold positions
in the securities mentioned in his columns and on the Web site; in all instances,
all positions are fully disclosed at http://thetechnicaltakedotcom.blogspot.com/.
However, their positions may change at anytime. For more information on any
of the above, please review The Technical Take's full Terms of Use and Privacy
Policy (link below). While Lerner cannot provide investment advice or recommendations,
he invites you to send your comments to: guy@thetechnicaltake.com.
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