Sunday, March 05, 2006

Weekly Sentiment Check

The market didn't finish well on Friday. Often times, at the end of the week, the market will selll off as traders flatten out their positions and take profits before the weekend. That way, they don't have to worry about their positions over the weekend.

That said, the action in the Nazz was pretty nasty. The Nasdaq made a new weekly high during the day, but then reversed hard and closed down for the day. Volume rose to above-average levels, thus making it a distribution day as well. These type of downside reversals often indicate market weakness in the short-term. But it is too early to tell if it is anything more meaninful than that.

A look at the sentiment indicators shows that there is still more skepticism in the market than optimism. Most of the indicators are in neutral territory, but there are a few worth noting:
  • The bull/bear spread on Investor's Intelligence has fallen to +12 (43% bulls, 31% bears); that's lower than at any time last year. you have to go back to Aug. 2004 to find a reading lower
  • The 10-day ISE Sentiment Index is at 171; that's closer to the low end of its range (read: less call buying) than it is the top of the range
  • The Rydex Nova/Ursa ratio is at 0.20; that's also close to the low end, meaning there is still more assets deployed in bearish market strategies vs. bullish

I have also learned to be weary of markets that make new highs in March. It often leads to some nasty pullbacks. But those pullbacks move the market into longer-term oversold positions and cause bearish sentiment to spike, which then leads to another trading bottom. But let's not get ahead of ourselves.

Enjoy the rest of your weekend--


At 7:28 PM, Blogger Cam said...

Hey, I just started a blog of my own with my investment ideas at I too am an avid watcher of Mad Money and try to get ideas from it. I saw your blog and hope to use it for ideas as well and thought we could bounce ideas off one another from time to time. My blog has some background on me and my investment history, as well as my first set of stock picks (WEBX, DOW, NBR, HW, DSCM and DRL). Check it out when you get a chance and let me know what you think. I'd appreciate the feedback as I am a new blogger.


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