8 replies to this topic

[OEXCHAOS]

This is Friday morning's ISA Daily. Note the conclusion.

ISA Daily Trade Navigator for 8/24/07
Friday at 9:06 am
By Mark Young of Equity Guardian Group

Short-Term Sentiment:
Bullish-to-Neutral

Overall Intermediate-Term Sentiment: Neutral-to-Bullish.

Individual Investor Sentiment: Neutral-to-Bearish.

Small Speculator Sentiment: Neutral.

Small Hedge Fund/Manager Sentiment: VERY Bullish.

Longer-term Trend:
Positive.

Intermediate-term Trend:
Still Negative. Turning.

Short-term (one-day) Signal:
None, but I'm looking both ways.

We are trading these signals and others (well) intra-day for our Premium subscribers--contact us for details.

*******************************************************

Introduction
This morning, GLOBEX was down a buck or two but now it's up. We've finally got some optimism in one poll, but the message board polls say, "weakness is for buying". The MACD Buy is the best ST Sell signal we have and I'd say that strength in here is for shorting, IF you're a gun slinger. Don't be greedy, though.

Message Board Sentiment
The message board sentiment poll now shows Bulls at 16% and Bears at 56%, which would be Bearish, since these guys tend to be right a bit more often than not, but this is WAY too Bearish and so it's Bullish. Participation was well above normal. The Actual Position Poll now has 5% fully long and 16% partially long. 28% are partially short and 21% are fully short. This is still above my 20% threshold. The ongoing lack of confident Bulls and the large number of aggressive Bears is quite Bullish. We are still technically in a down trend, so the Fully Long Bull/Fully Short Bear ratio needs to be below 60% to give a clear Buy. Fortunately for the Bulls, we're at 33%-- an very strong Buy of intermediate term proportions. We will probably rally at least once today, but the big take away is the intermediate-term Buy. If we get a sell off ( think we will), it ought to be bought.



For a larger image, try here: http://www.traders-t...5<br /> <br /> Check out a href="."/" eudora="autourl">www.traders-talk.com for early updates of the sentiment polls every day.

Our T-4 Turn Indicator went out at 52 which is away from a signal. Yesterday's signal may be a Sell. We have had several signals in a row, and it's very hard to figure out which are buys and which are sells. All we know is that we should be open to at least a short-term a turn. Typically we want to see readings above 80 or higher before we look for worthwhile turns. This indicator doesn't catch every top and bottom, but it is a great "Heads up!" indicator.

Options Sentiment
Daily P/C ratio: 1.16. Neutral-to-Positive.
10-day P/C ratio: 1.19. Constructive.
Equity P/C ratio: 0.71. Neutral.
OEX PC ratio: 1.20. Neutral.
OEX 10-day PC ratio: 1.33. Neutral.
OEX $-weighted* P/C ratio: 1.14. Neutral.
QQQQ $-weighted* P/C ratio: 0.87. Neutral.
ISEE Sentiment Index: 96. Buy.
Relative VIX: Coming off a Buy.

For a discussion and additional charts of the Relative VIX, click here: http://www.traders-t...5<br /> <br /> The options data are basically constructive since they are showing no optimism and given that the Relative VIX hit an all time (i.e. 17 year) high last week. With ISEE as low as it is, I think we have to be generally Bullish.

The ISEE Sentiment Index indicator is contrarian; traditionally, over 200 is too optimistic, under 100 is too pessimistic. *$-weighted P/C data courtesy of Fari Hamzei of www.hamzeianalytics.com . Readings over 2.0 are Bullish and near 0.5 are Bearish.

General Public Polls
TSPTalk, a large site devoted to Thrift Savings Plan management and personal finance is flashing Sell with 59% Bulls and 27% Bears. That's a Sell by their own standards, and that's pretty overdone in my eyes too. That's the type of thing I've been waiting to see prior to a test AAII reported 41% Bulls and 43% Bears vs. 42.22% Bulls and 45.56% Bears. This is a modest shift toward a more neutral reading. No Buy there. Investors Intelligence reported that Bulls fell to 40.60% vs. 43.0%, and Bears rose to 37.40% vs. 32.6. This isn't far from a marginal Buy. LowRisk.com reported that their sentiment poll ended Sunday was 22% Bullish vs. 28% Bullish last week, and 58% Bearish vs. 46% Bearish the previous week. This is quite Bullish. Probably late to the party, though. Mark Hulbert's HSNSI fell to -12% and that's an even better Buy. The last time we were in negative territory was at the June '06 low. Lazlo Birinyi reports that his Blogger Poll has 43% Bulls and 33% Bears. That's a good deal of Bullishness, but maybe not too much. Still, that Bullishness makes me nervous. Last week, TheStreet.com reported a jump in Bulls to 44% and a drop in Bears to 26%. This is a big jump, but it's clear that the Fed is supportive for now, so while this may be too much too quickly, it's not totally Bearish.

Rydex Sentiment
Our Rydex data shows that non-Dynamic Bull funds had $2MM (net) outflows on a sloppy day. The non-Dynamic Bear funds saw $13MM of (net) outflows. It looks like the amateurs don't believe in the Bull, but they are really bailing on the Bear. That's neutral. Dynamic Funds saw net Bull fund sells of $1MM, and Bear fund net sells of $63MM which nearly reverses the prior day's purchases (de facto short sales). The Dynamic players appear to be somewhat nervous, still. I view the data as neutral-to-slightly Bearish. The RSO showed a $69MM Bullish asset shift, on a sloppy day. That's technically a Sell, and it might be a good one, but I'd have preferred to see actually Bull fund buying not just Bear fund selling.

Conclusion
Last time, I talked about the strong buy from the Message Board Poll and Hulbert's Bullish data. Bigger picture, they tell us that Bears must be nimble. Now, however, we've got an interesting wrinkle. The TSP poll has 59% Bulls which is a Sell. In this nervous market, this could be what we need to take prices down for a day or three. The MACD Buy is now two days old and at this point, we can expect some non-trivial selling between here and next Tuesday. I would say that any run toward yesterday's highs could be a decent entry for a quick swing short. Just remember that any intermediate-term players ought to be looking to buy a good pullback.

The Mechanical Senticator model sold the SPY from 145.17 at 147.34. The Subjective Senticator Model did the same with a 1/2 position. Remember, these models must trade in the direction of the Senticator or not at all.
*******************************************************

Past performance is no guarantee of future returns. All information included in this missive is derived from sources we believe to be reliable, but no guarantee can be made to that effect. None of the forgoing should be construed as an offer or solicitation to buy or sell any security. The publisher may have a long or short position in the funds or securities discussed at any given time. We aren't your advisor, unless you have a signed contract with us. Please review any trade that you do with your trusted advisor FIRST.

---------------------------------------------------------------------------------

For more on using the ISA and the various sentiment poll data, click here:

http://www.WallStree...m<br /> <br /> Mark Young
Editor
800-769-6980
859-393-3335

[pabletto]

Insiders' Buying by Banks Rises to Highest Since 1995 ( Not since 1995 have so many chief executive officers of so many financial firms and their insiders bought so many shares in their companies as in August, when the market swooned. Stock purchases by executives at banks, consumer lenders and insurers in the Standard & Poor's 500 Index climbed this month to the highest in 12 years, data compiled by Bloomberg show. That's the strongest ``buy'' signal, according to analysts at Muzea Insider Consulting Services LLC and InsiderScore.com, which work for hedge funds tracking executive trading patterns. Wachovia Corp., American Express Co., CIT Group Inc. and American Capital Strategies Ltd.'s CEOs or directors added to their holdings as the rising cost of credit spurred by mortgage defaults sent the S&P 500 Financials Index to a 13-month low on Aug. 15. Insiders at companies in the index have bought $26.9 million of stock so far in August.

[ogm]

Its not just bank insiders buying.. its almost across the board. This is one of the biggest differences with 2000-2001 bear market.

[pabletto]

Argus Research: insider index .....

[thespookyone]

Nice call, as usual, Mark.

[ogm]

Argus Research: insider index .....

http://www.iht.com/a...y/mcolumn11.php

Time to sell or what? Maybe check an 'insider' index
By Mark Hulbert
Published: August 10, 2007
E-Mail Article
Listen to Article
Printer-Friendly
3-Column Format
Translate
Share Article

Text Size

The sharp stock market decline that began in late July is more likely to be a minor downturn in a continuing bull market than the beginning of a major bear market.

That, at least, is the conclusion of an extensive analysis of corporate insiders' trading behavior.

Insiders are a corporation's officers, directors and largest shareholders. It stands to reason that they know more about their companies' prospects than the rest of us do, and many investors pay close attention to whether that group is buying more than it is selling, or vice versa.

In most countries, insiders are required to report purchases or sales of shares of their companies' stock to regulators. In the United States, they are required to report immediately to the Securities and Exchange Commission.

On the surface, it is hard to conclude from SEC data that insiders are behaving bullishly.

For the year to date, corporate insiders, on balance, have sold more than 15 shares of their companies' stock for every one they have bought, according to Argus Research, an equity research and analysis firm in New York.

That certainly looks bearish.

But that reasoning is based on a serious misinterpretation of the data, says H. Nejat Seyhun, a professor of finance and business administration at the University of Michigan who has devoted much of his academic career to analyzing insider behavior.

When properly interpreted, he argues, insider behavior this year is bullish - more bullish, in fact, than it was in 2006.

How can Seyhun reach such a conclusion, which is more bullish than the underlying data would seem to indicate? Perhaps the biggest factor is the role played by stock options that companies often grant to insiders.

When insiders exercise the options and then sell the shares they receive, typically only the sales will show up in the ratio of market-wide insider sales to purchases. That's because that ratio focuses on transactions made in the open market at then-current prices.

Buying a stock through the exercise of an option doesn't qualify, because the purchase is made at the strike price of the option, not the prevailing price on the open market.

There is nothing new in the way insider transactions are summarized; it has been done this way for decades.

What is new is the explosion in companies' use of options to compensate top executives. As a result, insider selling is of far less bearish significance than it was several decades ago.

For historical comparability, Seyhun argues, insider sales need to be weighed according to whether they occur immediately after the exercise of an option.

In unpublished research, he has done just that. And he has taken into account other factors he has found to be important in interpreting insider behavior. These include the type of insider who made the transaction, the size of the transaction, and whether it occurred in the context of a rising or falling stock price. A good summary of that previous research is in his book, "Investment Intelligence From Insider Trading" (MIT Press).

The research has resulted in what Seyhun calls his Insider Confidence index. He calculates it by dividing insider purchases in a given month by insider sales, after adjusting both halves of the ratio by the various weighting factors.

He has compiled this index back to the mid-1970s, and found it to have an impressive record in predicting the market's subsequent 12-month return.

Based on that history, he said during an interview, he considers readings below 45 percent to be bearish, and levels above 55 "strongly bullish."

Where does the index stand now? For the first seven months of 2007, it averaged 56.7 percent, he said, and at the end of July it stood at 57.4 percent. These readings are well above the bearish zone, and slightly inside the "strongly bullish" zone.

They are even a bit above the index's average 2006 level of 55.9 percent.

One reason that the index is a good forecasting tool for the market's direction for up to a full year, Seyhun added, is insiders' fear of being accused of trading illegally on privileged information. Insiders therefore are wary of buying their companies' shares before good news is reported, and likewise tend to avoid selling before bad news.

Assuming that insiders live up to their historical patterns, they will give us ample advance warning before the next major bear market.

So far, they haven't sent such a signal.

Mark Hulbert is editor of The Hulbert Financial Digest, a service of MarketWatch

[Mtrader]

Too many eager to make money!! or This whole publicity about subprime and mortgage is another mordern media search for coverage!! Take your pick.

[Jnavin]

Not too impressed with the caliber of CEO's and their corporate exec brethren/sistren these days. Otherwise, I might take their buying and selling seriously.

[thespookyone]

I've never found insider entrys, or exits to be timed very well. Not that they don't have the trend right most of the time, I find they both enter-and exit too soon.