Here is this week’s sentiment summary:
The bad news is that according to Argus Research, insiders selling pressure is now double what it was during the bottom in March. The good news is that it is still low enough to mean that insiders do not view the ensuing bounce as just a bear market rally. That gives you an idea of just how critical the March 2008 bottom was!
In mid-March, just as the market was trying to find footing, the sell to buy ratio hit 1:1. This is very rare since the long term average is just a tad above 2:1, meaning on a given week insiders sell 2 times as many shares as they buy. The last time this ratio was lower was in October 2002 when it reached 0.89:1.
Even better news, according to new research the “normal” level of selling to buying has been reset much higher due to the increasing allocation of ESOP as compensation for executives. Check out the book by Prof. Nejat Seyhun (University of Michigan) “Investment Intelligence from Insider Trading” for more.
There were no significant changes in the usual sentiment surveys I follow, namely AAII and Investor’s Intelligence, as bulls continue to outnumber the bears.
Investor’s Intelligence had 47.3% bulls and 30.8% bears while AAII had a similarly slight increase from 45% bulls to 46%. While optimism has the majority it isn’t anywhere near levels correspondent with major market tops.
This is rather odd. Usually when the market receives the kind of drubbing it got this week, option traders hurry to buy downside protection. But the reverse happened according to the ISE options data. The All Securities ISEE Sentiment Index actually went up from 117 to 140 on Friday.
This means that there were 140 calls bought (to open) for every put on the ISE platform. This isn’t the highest levels of optimism by any means. On October 8th it reached 187 and October 29th 192. But it isn’t just the absolute level of call to put buying that surprises me, it is the fact that it follows on a really bad week for the markets.
I’ve been cautious since mid April as indicator after indicator lined up against a strong continued rally. That caution seems to have been warranted as we’ve given up all the gains since. This latest ISEE data point is just one more that should keep any contrarian on guard.
CBOE Equity Only Put Call Ratio
In contrast to the ISEE Sentiment data, the CBOE equities only put call ratio went up during the week. Since it is the inverse with calls being the denominator of the ratio, this means that option traders, as measured by the CBOE became actually more cautious as the market fell.
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