First, I apologize for all the popups one must tread through (more than Orville Redenbacher does) to get to the article - this growth is getting ridiculous. However, this is probably the most important article I have written since starting, due to the high extremes from my Sentiment Blog: http://mktsentiment.blogspot.com/
First a notice that the annual Martin Pring Outlook is upon us, January 11 in the morning -
Golden Gate University, Room 2202
536 Mission Street, San Francisco, CA
Saturday, January 11th
9:00am - 12:00pm
$10 for members, $20 for non-
Recently this column noted that (legal) Insider Trading was one of the Sentiment Indicators being tracked, but was not one of the most predictive; one rationale was that SEC Form 4 filings track both corporate officers and board members, as well as holders of 10% of the stock, which is understood to be the less knowledgeable than the former 2 groups.
Thanks to an article in Barron's recently pointing out the great value of Finviz.com, the distinction was made - just in time!! Although Sellers always outnumber Buyers by quite a bit, that number rarely exceeds $1 Billion of Sellers, and is usually between 10 and 50 to one; the past month this ratio has gone through the roof: in fact, the past four weeks show escalating numbers of 29:1, 75:1, 106:1, and last week 224:1. In ten years of tracking this statistic, the highest number was 235:1 - this occurred two months before the last major correction of July 2011. In fact, for six months sideways Trading Range prior to July, numbers were - 198:1 on the week of Jan.21; 125:1 Feb.12; 163:1 on April 29.
Unless Janet Yellen can work Uncle Ben's magic, history could be the guide to an incoming Trading Range followed by a major correction between now and May, 2014. Breaking down last weeks Form 4s, there were 3 Buyers and 3 Sellers from 10% holders; from the Officers/ Board side there were 9 Buyers and nearly 300 Sellers!!!!
On the positive side, in the past 60 years of the 17 years with 20+% markets, 14 of them rose the following year, causing Ned Davis Research to opine that due to the Yield Curve not being inverted, they are looking more for a 20% correction, then @60% more up. Possibly after the October 4-year Presidential cycle low. This would be a buying opp, if the high frequency traders do not catch fire to the downside, as in 1987.
Continuing with Sentiment Indicators from my blog: http://mktsentiment.blogspot.com, the McClellan Oscillator topped out last week, just as it has after reaching 50+, especially so the last twelve months. Even more visual is the 10% - 5% chart that forms the Oscillator - a study of Advance/Decline breadth, leading the equity indices by one to three weeks.
Further evidence of caution includes more widening of the Investors Intelligence Bull/Bear ratio, now almost 60 to 14; the AAII ratio has now joined the complacent group as well. Of the two, the AAII would be considered the least informed ratio participants - individual investors versus wire house newsletters. The decade high for the II was Dec. of '04, just 3 points higher - 2005 was a so-so year following that peak; however, the recent high for the AAII was December 2010, and 5 months later - May- the market tanked bigtime.
The two-year Treasury note yield jumped from 0.32% to 0.39% the prior week, inching up to .40%, which is the recent record high. Other signs of complacency included high NAS to NYSE Volume, and a 10:1 NY hew hi to new low ratio, albeit on low holiday Volume. Further year en wackiness was the reversing of MMF flows from $22B into money markets a week ago to a $35B outflow.
Happy New Year - 2014 may not be so .