Tags: Signs | Investors | Confused

Signs Show That Investors Are Confused

By    |   Tuesday, 14 Feb 2012 08:56 AM

Last week in this space, I talked about the three main sentiment indicators that I use for the overall market—the CBOE Equity Put/Call ratio, the Rydex Nova/Ursa ratio and the Investors Intelligence report.

The 21-day moving average on the CBOE Equity Put/Call ratio was low and has since moved even lower. With this indicator, low readings mean increasing optimism and from a contrarian point of view that is a bearish sign.

The Investors Intelligence report was locked in a range and finally saw a decent sized change on last week’s report. The bullish percentage jumped to 52.1 percent from 48.9 percent.

The Rydex Nova/Ursa ratio was the one that experienced the biggest change among these three. After experiencing a sharp drop at the end of January, the ratio spiked sharply last week.

From last Tuesday’s reading of 0.293, the ratio jumped to 0.360 on Wednesday. Remember with the Nova/Ursa ratio, low readings mean investors are pessimistic and this is a bullish sign for contrarians.

Sharp drops and sharp spikes are not that unusual for the Rydex Nova/Ursa ratio, but having a sharp drop and then a sharp spike higher one week later is unusual.

Drastic posture changes such as the ones we have seen in the last two weeks might be expected around major economic events. But these two big changes happened at a time when there was very little economic news.

What this suggests to me is that investors are confused.

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