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.