Stock Market Investor Sentiment Still Bullish

By: Guy_Lerner

Despite last week's big jump in the equity markets, the "dumb money" remains bearish on equities. These investors appear to be reluctant and still on the sidelines. The "smart money" is still bullish. This is a bullish alignment of signals suggesting that dips will be bought.

The "Dumb Money" indicator is shown in figure 1. The "dumb money" 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"/ weekly


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" indicator is shown in figure 2.

Figure 2. "Smart Money"/ weekly


A 10% "pop" in one week, and the "dumb money" still remains bearish. Maybe they know something? It doesn't seem likely as they (i.e., the "dumb money") were holding on since the January, 2009 highs and hoping that the November, 2008 lows would hold. Woops!! That didn't work out. It appears that the "dumb money" threw in the towel at the wrong time.

In any case, the "Smart Money" and the "Dumb Money" indicators remain bullish, and it is my belief that dips will be bought. After a 10% up move in a week, one would expect the market to pullback, but often times in the markets, there is a gap between our expectations and reality. The pullback will be bought.

However, I just don't know how deep or shallow the "expected" pullback will be.

As stated last week , I believe this will be a counter trend rally within an ongoing bear market. This will not be "the bottom", and it is my belief that "the bottom" will take time (i.e., many more months) to develop.

By Guy Lerner

http://thetechnicaltakedotcom.blogspot.com/

Guy M. Lerner, MD is the founder of ARL Advisers, LLC and managing partner of ARL Investment Partners, L.P. Dr. Lerner utilizes a research driven approach to determine those factors which lead to sustainable moves in the markets. He has developed many proprietary tools and trading models in his quest to outperform. Over the past four years, Lerner has shared his innovative approach with the readers of RealMoney.com and TheStreet.com as a featured columnist. He has been a regular guest on the Money Man Radio Show, DEX-TV, routinely published in the some of the most widely-read financial publications and has been a marquee speaker at financial seminars around the world.

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