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Wall Street Sentiment--Supplimental


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#1 OEXCHAOS

OEXCHAOS

    Mark S. Young

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Posted 03 December 2013 - 05:25 PM

Wall Street Sentiment--MarketViews Interview Supplemental


We recently observed two important Sell signals, both received Thanksgiving weekend. The first was an intermediate Sell from ISEE. ISEE is a measure of true call vs. true put buying, as it excludes market maker and firm trades (as regular put/call ratios do not), which might otherwise give a false impression of sentiment. When ISEE rises beyond a certain level and stays there for a significant amount of time, it implies that investors are far too aggressively speculating on higher prices.

This may indicate that the market may have "run out of buyers", or it may simply indicate a lot of calls that were sold that the "powers-that-be" might want to buy back more cheaply at lower prices. In any case, this does not bode well for the stock market's near-term future.

ISEE10_day12_05_13.gif

The second Sell signal came from NAAIM. NAAIM performs a survey of active investment managers each week, which gives us an intricate view of how managers are viewing the market. Last week, we noted with interest that the most Bearish position held by any of the advisors in the survey shifted from 100% short to 50% LONG. Not all of these instances have been particularly Bearish, but in a period of deteriorating technicals and other excessively Bullish sentiment, if the biggest Bears shift Bullish enough (i.e. to an appreciably long position), it can be a sign of capitulation and a marker for short-term weakness.

NAAIMLargeShift12_05_13.gif

Interestingly, we have seen the argument that the positive seasonality is likely to override these signals. Well we took a look at some past ISEE IT Sell signals and one from from November-December of '02 in particular caught our eye. It seems that ISEE gave an IT sell on 11/27/02. It took a couple days to get any selling, but eventually it came in spades. Is this a possible analog for today? I think not, in that we're in a solid Bull market, but still weakness can materialize even during generally positive periods. Don't ignore your best technical tools.


http://stockcharts.com/c-sc/sc?s=$SPX&p=D&st=2002-04-03&en=2003-05-05&i=p33006813345&r=1386080516494.png
http://stockcharts.com/c-sc/sc?s=$SPX...86080516494.png

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