Complacency Could Be Costly
Courtesy of Paul Price, Guru Focus
Still a time for caution?
Last weekend I made the case for tempered enthusiasm on the market’s near-term direction.
One week ago the Thomson Reuters Insider Sell/Buy ratio was in bearish territory, put option buyers were nowhere to be found and the general public was feeling pretty optimistic in making net purchases of equity mutual funds. The last two of those factors are contrary signals to be taken negatively.
Despite those signs the Dow Jones Industrials, and my personal accounts, had plus signs attached in the week ended April 22. The five-day DJIA gained 0.59%, tacking on almost that whole amount just on Monday.
Corporate officers and directors remained in a profit taking mode. Their sell to buy ratio dipped marginally, from 36 open market shares sold to each one bought, to around 35 times. That still firmly anchored this signal near its worst readings of the past 12 months.
History says large upward moves rarely start from levels like last week’s.
The Equity Only Put/Call Ratio held steady over the last seven days. Option buyers are notoriously bad market timers. That’s why high put buying is considered a positive sign. The chart below shows the inverse correlation of the put to call ratio with movements in the S&P 500.
Unfortunately for bulls, this indicator is now stuck in a region that suggests near-term risk.
