Discuss Market Comments 12/21

Another look at 2006 - Despite the Dow losing 14-points on the day, stock indices closed mostly higher on the day and the S&P 500 closed at a new 2-year high...

Market Commentary for 12/21/10

Current Daily Market Commentary

 

[churejita]

Thanks Tom! I'm trying to soak this all up. Please help me understand dumb money vs. smart money, and how they influence the market.

Thanks!

Adrian

 

[tsptalk]

Hi Adrian -

The dumb money is the less sophisticated traders and investors. Yes, we are part of the dumb money. When their market sentiment gets extreme, too bullish or too bearish, it is a contrarian indicator.

The smart money are the pros who make their living in the market. The real deals. They are usually doing the opposite of the dumb money at market peaks and bottoms. You don't usually want to go against them.

 

[divivinc]

So your saying we should go against ourselves?

 

[tsptalk]

That's what the sentiment survey is doing.

It is most useful at market extremes. We are getting close (too bullish), if not already there. Watch the level of bearishness during any pullback. Complacency will mean more downside is likely. Fear will mean the pullback is likely over.

 

[Birchtree]

I can't help but think the stones are aligned for 2011 to be another 1995. It would certainly be impressive and wealth building - leaving all those under water mortgages right where they deserve to be left. Eventually they will revive but not until the SPX is bumping resistance at 1700.

 

[EmoDx]

Hi Adrian -

The dumb money is the less sophisticated traders and investors. Yes, we are part of the dumb money. When their market sentiment gets extreme, too bullish or too bearish, it is a contrarian indicator.

The smart money are the pros who make their living in the market. The real deals. They are usually doing the opposite of the dumb money at market peaks and bottoms. You don't usually want to go against them.

You can also use the Money Flow Indicator on Yahoo Finance to validate "too bullish or too bearish".

Look for market tops to occur when the MFI is above 80. Look for market bottoms to occur when the MFI is below 20."

The default is a 14 day smoothing period. Right now the 14 day moving average for the S&P 500 is 87ish and the 5 day period is 79ish. What is interesting is that the 5 day period peaked Monday near 100 and is starting to trend downward.

- Emo

 

[Boghie]

Folks,

There have been no boom days. Really no bust days either. Money is moving slowly from somewhere into equities. I want to know where that somewhere is, but I will not be the first to try to guess a market change...

 

[Boghie]

Wow, should have looked at the post...

Very similar. Especially the pattern of gaining 25 points every week. 2006 had the same slow growth pattern. Then dumped quickly by three weeks of the slow growth.

Interesting.

That would leave the S&P500 with an annual gain of only 3%.

I would win the pre-season guess - but, that is a contest I would rather lose.

 

[tsptalk]

I think money managers who have missed a chunk of this rally are trying to pad their annual reports by showing they are in stocks. Just a theory.

 

[WorkFE]

Probably some truth to that