We are long QQQ (QQQ). Some accounts we advise are also long SPY and DIA.
As long time readers know, I follow the ZYX Change Method. The method combines fundamental, quantitative, and technical analysis. From a fundamental and quantitative point of view, the stock market is not expensive and should move up. However, the sentiment component of the technical screen of the ZYX Change Method is flashing caution.
For us, sentiment is an important indicator. We use a proprietary sentiment indicator that is a composite of the following:
- Emails from our subscribers and clients
- AAII Survey
- Option skews
- Put call ratios
- Put call open interests
- Money flows
The following table describes how the sentiment is interpreted at The Arora Report (click to enlarge images):
Bottoms are formed when sentiment gets extremely bearish. This is the point when all the weak hands have sold the stock. Once stocks get in the strong hands, markets rally.
The American Association of Individual Investors weekly survey data is shown in the table below. The readers will notice that during the June 9, 2011 swing low, the bullish sentiment was lower than the point when the market went down 1500 points. This shows that during the recent sell off, bullish sentiment never got flushed. Read more…
