Monday, March 03, 2008

Investor Sentiment Check

The market is still hovering near the flat line on the day, at least for the S&P 500. The Nasdaq has not been able to bounce as much, as some tech stocks remain under pressure.

I think what helped the market bottom early this morning was the extreme put buying that was going on.

  • The CBOE put/call ratio opened at 1.54 this morning, and is still hovering near 1.21. These are very high readings.
  • The ISEE opened at a depressed level of 48, one of the lowest readings on record. And it is still only at 78 as of now.
  • And the ARMS Index has been above 1.0 all day, and as high as 1.30 this morning. It closed at a whopping 2.74 on Friday.

The sentiment indicators are all flashing signs of extreme bearishness. We know from past corrections that the sentiment indicators don't call bottoms very well, but they do help give investors confidence that when the market does bottom and reverse higher, the unwind of these positions usually adds upside fuel to the fire.

The calls for a retest are growing louder, with Merrill (MER) basically saying it is a certainty in the next few weeks.


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