Tags: Rally | Sentiment | Indicators | stocks

This Rally Has Legs, Based on the Sentiment Indicators

By    |   Tuesday, 31 July 2012 08:02 AM

The Standard and Poor’s 500 Index has moved higher in four of the last five weeks and in six of the last eight weeks, and while the sentiment indicators have shifted to more bullish readings since the rally started at the beginning of June, they actually turned more bearish this past week.

Since last Tuesday, the Rydex Nova/Ursa ratio fell from 0.454 to 0.362 on Friday.

The Investors Intelligence report from last week showed that the bullish percentage fell from 43.6 percent to 40.4 percent, while the bearish percentage jumped from 24.5 percent to 26.6 percent.

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The 21-day moving average on the CBOE Equity Put/Call ratio has risen slightly during the last two weeks, moving from a reading of 0.695 to 0.70. Remember, a higher reading means investors are more pessimistic.

What these indicators suggest to me is that investors are not buying into this rally as quickly as they have in past rallies. This is good news, as investor skepticism is necessary for a sustained rally.

Look at it this way, when everyone is bullish and has already bought into the market, who is left on the sidelines to add any buying pressure?

While investors have shifted to slightly more optimistic levels, they are far from being overly optimistic, and this should allow the market to continue moving higher.

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Tuesday, 31 July 2012 08:02 AM
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