A Look At The Indicators
This post will look at the various indicators that I follow:
- Seasonality – Seasonality will be positive through Tuesday of next week and then turn negative. The “Sell in May” period begins.
- Overbought/Oversold – The market is currently overbought but has the potential to become a little more overbought through Tuesday of next week.
- Put/Call Ratios – The put/call ratios are neutral. This is surprising given the rise in the market. This is a plus for the bulls.
- Rydex – After pulling back in early April, Rydex traders are back at a bullish extreme. This typically happens in the latter parts of a rally.
- Surveys – The Investor’s Intelligence survey is at a bullish extreme with the bears at a meager 18.5%. The AAII survey is not an extreme and is actually neutral. I put more weight on the Investors Intelligence survey because the AAII survey tends to be very fickle. However, I would prefer it if both surveys were saying the same thing.
Summary
By the middle of next week we will be overbought and seasonality will turn negative. We are seeing mixed signals on sentiment with Rydex and the Investors intelligence survey pointing to extreme optimism but put/call ratios and the AAII survey pointing to more subdued sentiment.
All in all this makes me want to find a nice place on the sidelines by the middle of next week. But I would like to see more extreme sentiment before taking a net short position.