The 3 to 1 ratio was before the addition of the Titan and Tempest funds, so I doubt we will ever see 3 to 1 again Ursa over Nova. I noticed that at the April 1997 low, the ratio got as high as 4.70 to 1 Ursa over Nova. I would think maybe we need to do something with the Nova and Titan over Ursa and Tempest ratio. None of these Rydex ratios have been tested in the type of bear market we are in and they may eventually go to inversions we can't imagine now.
The past three months when many technicians and gurus were expecting an imminent rally, many sentiment indicators really proved their mettle, especially Investors Intelligence. The first week of July it got below 26% bears and remained there for several weeks. This was near and then at multi-year lows in the number of bears and meaningful rallies have never been launched amid such complacency, especially when the market has been in a trading range as it was back then.
There seems to be an ingrained bullishness in investors and traders - a residue of the great bull run of the late 90s.
Major bottoms in the market have always occurred only after weeks (actually other than the 1998 low it has been months) of more bears than bulls in the Investors Intelligence poll. Presently, we are at our longest stretch ever of more bulls than bears and to my surprise, bullish newsletter actually writers increased last week. What is it going to take to get these newsletter writers bearish? One note, beware of turning prematurely bullish when and if this inversion first occurs. I'm sure much will be of this fact when it initially happens.
Did anyone notice the out of the ordinary heavy net selling
the past three weeks by the NYSE members which includes floor traders and specialists? Haven't seen this week's numbers yet. Would have to check the hard data but can't recall such heavy selling over a three week period and this indicator was right-on in calling the recent carnage.
Commitments of Traders Report, a sentiment indicator that was pretty useless the last few years of the mania suddenly
has become very useful. Throughout the 90s it was more often than not the commercials net long and the small speculators net short. Since May of last year that has inverted and remained so week after week. In fact, the commercials just keep getting more net short and the public net long.
Richard Bernstein's (of Merrill Lynch) indicator of the recommended equity allocations of the Wall Street strategists has been getting some ink lately and that too has done well in predicting the market swoon. Just another sentiment indicator showing major complacency. Speaking of Wall Street strategists and analysts, will there ever be any capitulation in the Wall Street Week Elves index? These 10 guys (and ladies) are either always bullish or neutral - just another indicator of complacency in this don't worry, be happy bear market.
Put/call ratios, at least the way I use them, seem to have failed the past three months. I quit paying heed to them after a bad trade during the triple witch week in June. I traded a pattern based on put/call ratios that was one of my most reliable. When reliable indicators fail me, that tells me something is amiss with the market (and the indicator) In fairness, I should say option guru Larry McMillan who uses a more sophisticated approach to put/call ratios says his read on the ratios and has been bearish the past few months.
I've never been much for predictions and who knows, maybe it will be different this time (didn't we hear those words in the late 90s) but based on most sentiment indicators such as Investors Intelligence, mutual fund cash positions, insider buying, NYSE Members Report, COT, net selling by mutual fund holders, and more, we aren't *remotely* close to levels associated with past ultimate bottoms. I've been saying this all summer and even though we are lower, I still see complacency. Seems the fear of missing the next tradeable rally far exceeds the fear of there being no bottom. And the later is what usually occurs at the ultimate lows, that and utter despair.
As for bear market rallies, the Consensus % of bulls has been the most accurate the past 18 months. It called both the May 2000 and April 2001 rallies by going under 20% for a few weeks.
As bearish as I've been, I would go long in a second if we got one of those stupendous upside/downside volume days. Recall, the nearly 24 to 1 upside/downside day in the Nasdaq on April 5 was (as best as I can recall) a record and led to a nice rally over the next several weeks. Actually, I thought that record momentum day (and very wrongly so) was the beginning of something more lasting.
Lastly, as mentioned in other venues, I still find (never have) no predictability whatsoever in the AAII sentiment poll. It's too erratic. |
