It is the same story this week as last as this is now the sixth week in a row where investor sentiment, as measured by the "Dumb Money" indicator, remains neutral. When we couple this with the fact that prices on the major stock indices remain below their 40 week moving averages, there is a high likelihood that the market will rollover in the next several weeks.

And doesn't it seem like the same old, tired story from the incessantly, perma-bullish high profile analysts - the same analysts who have been calling a bottom ever since the market fell apart in October, 2007? Hey, you better jump on board now as the train is leaving the station.

The new bull market that we keep hearing about with every market uptick could have launched already. Then again maybe it hasn't. But if you keep pounding the table enough times maybe you can improve your batting percentage and get at least one market "call" right.

Honestly, no one really knows, but the high odds, unemotional play is to continue to sell strength and tighten up stops. I have previously discussed these observations in the article, "Investor Sentiment: Some Context".

From my perspective, this still remains a bear market rally, yet as vociferous as the bulls have become, it would not surprise me to see the market stuck in a narrow range for some weeks to come. After all, the market will do its best to test the conviction of both bulls and bears before rolling over or moving higher.

The "Dumb Money" indicator is shown in figure 1, and it is in the neutral zone. The "dumb money" looks for extremes in the data from 4 different groups of investors who historically have been wrong on the market: 1) Investor Intelligence; 2) Market Vane; 3) American Association of Individual Investors; and 4) the put call ratio.

Figure 1. "Dumb Money"/ weekly

The "Smart Money" indicator is shown in figure 2 (middle panel). The "smart money" indicator is a composite of the following data: 1) public to specialist short ratio; 2) specialist short to total short ratio; 3) SP100 option traders. I have placed the "Dumb Money" indicator in the lower panel.

Figure 2. "Smart Money"/ weekly

By Guy Lerner

http://thetechnicaltakedotcom.blogspot.com/

Guy M. Lerner, MD is the founder of ARL Advisers, LLC and managing partner of ARL Investment Partners, L.P. Dr. Lerner utilizes a research driven approach to determine those factors which lead to sustainable moves in the markets. He has developed many proprietary tools and trading models in his quest to outperform. Over the past four years, Lerner has shared his innovative approach with the readers of RealMoney.com and TheStreet.com as a featured columnist. He has been a regular guest on the Money Man Radio Show, DEX-TV, routinely published in the some of the most widely-read financial publications and has been a marquee speaker at financial seminars around the world.

© 2009 Copyright Guy Lerner - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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