Bullish, but pushing it a little

Stocks were mostly flat, and mixed yesterday as the Dow and S&P 500 closed slightly higher, while the Nasdaq and our I-fund lost some ground.  Small caps were down, but mid-caps were strong helping our S-fund to modest gains.

The S&P 500 chart continues to move up and is dancing along the upper wedge resistance line again.  With the 200-day EMA at 1031, the S&P is now trading 106-points above it, keeping it near that 113-115 point area that seems to be an extreme overbought level for the index.  The 200-day EMA is rising daily so theoretically the S&P and the 200-day EMA can just slowing climb higher without hitting that 113 point difference, but it is more likely we will get some kind of a pullback eventually - at least that is what the bulls who want to buy would want to happen.  Will the market give them the chance? 
                     
                     Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Here's another extreme reading.  The Rydex funds are seeing the bulls heavily outnumbering the bears in the Nasdaq 100 Rydex funds.  This is a contrarian indicator as it is considered more of a "dumb money" indicator.  2009 saw this indicator stay above what is considered the "normal" overbought level, so it hasn't really helped much.  But historically, this would be an extreme reading.

        
                                Chart provided courtesy of www.sentimentrader.com   

This sentiment indicator is different from sentiment surveys in that it is not telling us what the investors and traders are saying will happen.  This is telling us what they are actually doing with their money. 

What's the difference?  Let's say a trader was looking to buy some stocks but was waiting for a pullback before doing so.  They might respond to a sentiment survey saying they are bearish because they want the market to come down so they can buy at a lower price.  In reality, they just want it to come down so they can buy.  So, it's just a different slant.  What they say and what they do may be two different things.

Put / call ratios are similar except that some people buy and sell options as protection against their main investment position so it is not always as telling.  That said, the dumb money of the CBOE put / call ratio is quite bullish.  A reading above (in chart position, not number) the 0.85 area has been an area of concern for the market over the years, although like the Rydex ratios, extreme readings in 2009 did little to pull back the market.
          
                    Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The smart money of the OEX put / call ratio is at 1.48 to 1 meaning the smart money is much more bearish than the dumb money.  The smart money tends to buy more puts for protection so the put/call ratio is almost always higher (in number, not chart position) than the dumb money put/call ratio.  But still, this is a bearish indication from both the smart and dumb money.  The dumb money appears overly bullish, while the smart money is as bearish as it has been in the last two plus years.

There is another jobs report tomorrow so expect some fireworks.  Estimates are in the area of a loss of 25,000 to 35,000 jobs, with an unemployment rate of 10.0% to 10.2%.

Thanks for reading.  We'll see you back here tomorrow.   

Tom Crowley