Tuesday, May 31, 2005


Listed below are the Contrary Opinion statistics that I use on a weekly basis ( any more frequent would be redundant). As any analysis is more an art than a science, each Indicator is only as useful as its timeframe and consistent accuracy:
Rydex Funds Nova vs. Ursa - the ratio of Bullish investors divided by Bearish. Recent range boundaries are 16 (Bullish) and 38 (Bearish, with too many optimists).
Option Put/Call ratios: My favorite is the CBOE Equity (shoeclerks) ratio where the high 60s and 70s indicate too much put buying (pessimism) and is therefore Bullish - the new Int'l Securities Exchange (ISEE) index is also tracked for overall sentiment (professional and retail).
Volatility Index, or VIX - a long term signal of complacency, has been in the low to mid-teens for several months and is more a coincident signal rising when markets sell off. It tends to travel in Trading Ranges, starting in single digits (8.8 was the all-time low), then into the 50's after the Millenium shakeout, now making new recent lows @ 12.
Newsletter surveys - various databases of futures traders, newsletter writers and shoeclerks (AAII), although based on what thesy "SAY", not what they "DO", is still useful to follow. Crossovers, where Bearish sentiment rises above Bullish is extremely significant. I watch AAII, Investor's Intelligence, and Market Vane - Bullish Consensus barely moves.
Confidence surveys - Univ. of Michigan and UBS are worth watching for extremes.
Mutual Fund cash - there are several iterations of this figure, whether in Money Market funds, or held back by the manager. Investor's Daily (IBD) has a very slow moving and often adjusted (like government work), but worth tracking for liquidity.
Nasdaq Volume to NYSE - gives the degree of speculation among investors, ranging over 5 years from 79 to 244%.
Barron's Trader's Smith Barney Panic/Euphoria Index just came out in their latest revision of the weekly. It is bounded by -1.5 (Panic) to +1 (Euphoria) now lying within the Panic zone.
My final FEAR VS. HOPE (I prefer Hope to Greed) Indicator is the delayed Public to NYSE Specialist short selling ratio, usually reported 2 weeks later, but useful in a longer trend.

I also combine Momentum Indicators with Sentiment as well as Volume, the tools of a Technical Analyst. These include: McClellan Oscillator and Summation Indices: are more of a momentum Indicator, like Advance/Declines (on which they are based) and New Highs and Lows. I find the shorter term Oscillator bounded by +75 and -100, where approaching these numbers dictate caution.
Finally, I never thought I would see 5% DJIA Dividend again, after the introduction of tech stocks into the Dow 30, but it is here now. 6% is the classic turnaround from a Bear market, with an average P/E ratio of @8 - that we have yet to see.

All of the above information is publicly available for free, from Barron's Market Laboratory, Investor's Business Daily, and websites.

With record numbers of dollars coming out of Money Market Funds, mostly into the crowded trade of short term bonds, anyone who has a minimal knowledge of covered call options and/or an interest in hedging stock market exposure might want to check out: brentleonard.com for an alternative strategy that is low-risk as well as highly rewarding. For those of you wanting more details and actual trading results, a new book is available for $14.95 at Amazon.com: Zero (IN)Tolerance

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