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For the Love of Money Is the Root of All Evil
The NYA New York Stock Exchange peak of +56.5% on 31 October 2007 was preceded by a final peak high ISEE of 191 on 27 October 2007, after registering a ten day moving average high of 154 on 15 October 2007.
http://stockcharts.com/charts/performance/perf.html?nya
The NYA reached a low on Friday 6 March 2009 after reaching an ISEE low of 104 on Wednesday 4 March 2009, after reaching a 10 day ISEE moving average low of 107 on 22 January 2009.
So we see sentiment indicators are leading indicators that may give us plenty of warning.
In terms of market psychology, put buyers give up at market tops and call buyers give up at market bottoms, sometimes called capitulation, throwing in the towel. In other words, call buyers were most confident (greedy) at market tops, while put buyers were most fearful (cautious) at market bottoms.
So what do we find now with ISEE and other sentiment indicators?
We see the lowest percentage of bears in a decade, suggesting a significant market top is coming.
We saw the lowest number of call buyers in a year on New Year’s Eve.
Thus we may see another big brief rally head fake bull trap before we head south for Round Two of the Great Deflation.
$13-26 Trillion of government stimulus bailouts and programs failed to accomplish more than a liquidity-driven 66% market rally. Yes, we know the stim-pork was rear-loaded to the 2010 election year, but many states already took the money and ran.
We note the Thursday market opening on New Year’s Eve saw the lowest percentage of calls to puts for Market Indices and ETFs, 21%.
http://www.ise.com/WebForm/viewPage.aspx?categoryId=126
Of course low market volume may have skewed the results. We shall know as or if market volume returns.
Our working sentiment hypothesis is the majority of market participants may talk bullish, especially on TV, but have a sub rosa sour taste for Mr Market despite widespread sweet New Year predictions of unpaid media monopolies funded by bankers and brokers. Most people who have used Wall Street research learned it can lose a lot of money, particularly when a wall street banker broker has a proprietary trading department front-running or taking the other side of client trades. Some called this the great vampire squid zombie effect.
