A REAL MONEY SENTIMENT INDICATOR THAT IS FLASHING “DANGER”
Sentiment indicators can burn you just like any other tool used to speculate in the financial markets. I have played with every single one since the mid-90's. Those that I have had the most faith in have burned me the most.
What makes the market into the sadistic, whip toting, soul crunching mistress that it strives so hard to be is that it has a formula for compromising any single indicator or tool that gains the faith of individual investors. If it hasn't gotten around to making you realize how worthless you favorite indicator can be, it is only because you haven't been around long enough. In time, every indicator you love will be made to look like a scrap of soiled tissue hanging out of the torn pant leg of a drunken bum.
As far as sentiment indicators go, I don't tend to rely on too many these days. I like anything that deals with real money. An actual reflection of where the money is going, not an opinion or survey. Therefore I tend to gravitate more towards put/call ratios, Rydex numbers, and margin figures.
I saw a chart today courtesy of Zerohedge that made me wince. It's a sign that the markets are overdue for recalibration. The bids and offers, participants and opinions needs to be readjusted. It's just how the markets work. Rallies need tune-ups. Market corrections provide the tools and the mechanics to the do the work.
The chart below doesn't mean we top tomorrow at 11a.m. What it does mean is that you shouldn't be balls to the wall long here with a mix Chinese internet stocks, optics names and chip stocks on margin hoping for Nasdaq 3,000 by July.
For the record, I have been and continue to be bullish on the Nasdaq/QQQ. I continue to believe that the QQQ will hit my 58 target before a top of any significance is experienced.
Chart courtesy of Zerohedge
click on chart to enlarge
NYSE Margin Debt
