Smart & Dumb Money Spikes

In July of 2008, our back-tested Global Market Trend Analyzer would have triggered to raise cash.  Today, the benchmark MSCI All Country World Index has moved all the way back up to those 2008 levels.  It has been quite an impressive two-year run in the world's stock market as it has recovered from that disaster.

But today, according to our Psychology Composite, there is too much greed among the public and too much negativity among the smart investors.  However, it sure doesn't feel like greed in the streets.  My emotions are begging me to remain skeptical, because 2008 was too painful to get too excited any more.  I imagine your emotions may be there as well, but that is why we have our model to protect us.  Our P5 Psychology rating, though negative, will be quickly wiped away with any type of correction in the market.  Fear is right under the surface; you and I both know it. 

The smart investors, represented by the average of the OEX Put/Call and the OEX Open Interest, are cautious as the indicator (seen below) has spiked mightily since the start of the year.  Institutional investors seem to be increasing their bets towards a market correction and buying puts.

But with our strong Monetary and Valuation readings that we've written about extensively recently, we remain very positive about the stock market's long-term outlook.  And as we look at world returns for 2011, we have seen a real advantage by the United States on the world stage.  Returns in the US are lit up in cool blue, while international markets currently look medium rare. 

We are bullish around the world, but right now, we really want to stay with the momentum of the US camp.  If a correction does occur (and has already begun in many countries), we believe the easy monetary policies in the US will allow the US to perform relatively well.

To view today's complete Global Market Comment, click here.

Keith Hays

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