Tuesday, February 21, 2006

VOLUME SPEAKS VOLUMES:

One of the more reliable Sentiment Indicators I've found, over the last four years, is the IBD's NYSE to Nasdaq Volume statistic - the ratio compares speculative trading relative to stodgier Blue Chips, even though the smaller caps have outperformed for all of this century.
Looking at almost all of the steep selloffs, they were presaged by a high number - usually 120 to 160 in favor of the OTC volume. And the 1-year and 5-year highs occurred almost to the day, as January 11 of this year (as well as Feb.2) marked a short term top, and, respectively, July 1 of '02 preceded a 1,000 point drop, albeit several weeks after the ultimate top. Looking at lesser tops in '04 and '05 confirmed this signal.
Having said that, the only other Indicators that are not benignly mid-range are Bullish: the Barron's Panic/Euphoria ratio at -.63, Public to Specialist shorting near all time highs at 5.67; and the Nova to Ursa Rydex fund ratio back into the teens.
Let momentum (and tight stops) be your guide until this clears up.

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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