Tuesday, June 01, 2010

Smart Money Optimism On The Increase

One sentiment indicator that has a fairly wide following is the Smart Money Dumb Money Confidence Index pulled together by SentimentTrader.com. As the below chart notes, the smart money indicators of the so called smart investors are starting to signal i more optimistic market environment.

Liz Ann Sonders, Chief Investment Strategist for Charles Schwab & Co notes:
"In general, you want to follow the smart money traders—tracking indicators such as commercial hedger positions and the S&P 100 index (OEX) put/call and open interest ratios. In contrast, you want to do the opposite of what the dumb money traders are doing—tracking indicators such as the equity-only put/call ratio, flows into and out of the Rydex series of funds and small speculators in equity index futures contracts.

As the old adage goes, markets can stay irrational longer than you can stay solvent, so I’m not here to judge the precise end to this correction. As we’ve noted, the market had been overdue for another pullback, one likely to be less benign than those that preceded it in light of stretched technical and sentiment conditions. In fact, it’s usually soon after the first year of a new bull market (cyclical or secular) that the market experiences its first 10%-15% correction."

Some Days Are Better Than Others ... Just Not These Days
Charles Schwab & Co.
By: Liz Ann Sonders, Chief Investment Strategist
June 1, 2010

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