Wednesday, March 23, 2011
Inching Higher
Successful breakout above recent resistance indicates that price is likely to head higher. So far constrained by the lower bound of the earlier range (see the red line at 1296.25), but I think we'll breach that soon. Some more resistance along the way, but a retest 1320 is definitely a possibility. Also note that the USD continues to indicate that the long term trendline is supportive...
Fear and Panic Levels in Retail Versus Institutional Investors
Fear and Panic Levels in Retail Versus Institutional Investors (from Stocktiming.com)...
You may recall that we had this discussion on March 2nd. ... a discussion about fear and panic levels of retail investors versus Institutional Investors. Here is a recap of that discussion followed by today's chart update and comments:
"It is often said that the VIX (Volatility Index) is used as a measurement of Fear levels for many investors. However, the VIX is utilized more by retail investors than Institutional investors as a trading tool.
What is not generally understood, is that Institutional Investors will often be hedging while the VIX is rising. That is why the NYSE's Down Volume should be looked at in conjunction with the VIX because the two indicators often show that they are in conflict with each other. Additionally, if you were to compare the amount of daily Institutional Selling to the VIX, you would see that there is a significant correlation between the two. (The daily action of both of these are reported on our Standard and Advanced investor sites.)
Market movements aren't simple by any means. Market movements are a reaction to a multitude of buying, selling, hedging, risk adjusting, and other actions by the big market players. Who are the big market players? For the sake of today's discussion, let's define them as entities that have the capability of initiating "program trades" for very large volumes.
When Fear seems to be kicking in, the VIX is usually rising to higher levels. However, if Institutional investors are fully hedged, then their fear levels are actually lower than the retail investor's fear level because they have some level of protection on their investments.
However, if Institutional Investors were to start panicking, then that would infer that they were not properly hedged, or that some "event" suddenly changed the risk/reward equation for their investment strategy. This is one of the reasons why I like to look at the daily levels of "New Lows" on the New York Stock Exchange (the NYSE).
The NYSE is where a significant amount of the "program trading" is initiated. (A lot of program trades are being filtered-out through other avenues these days, but enough generally remains in the NYSE for a statistically valid projection to be made.)
Which takes us back to discussing the New Lows again on the NYSE. The NYSE stocks have a larger Institutional investor ownership percentage than stocks from other indexes. I just checked the Institutional Investor "core holdings" list this morning, and it turned out that 84.5% of the "core holding" stocks were NYSE listed stocks.
So, the New Lows on the NYSE to some degree is a reflection of fear levels being exhibited by Institutional Investors.
So let's discuss some parameters to apply when looking at the NYSE New Lows ...
During the past few weeks, we had commented that a rise above 28 should be a red flag for investors to start being more observant of what is happening in other market areas such as technical indicators and/or changes in underlying fundamentals.
When you get close to a level of 28, you could be seeing elevated worry levels, but it generally isn't until the New Lows go above a level of 50 that panic selling activity starts to kick in by Institutional investors or "program trading" initiators. So, with this in mind, consider the NYSE New Lows on March 2nd. ... The New Lows on the NYSE came in at 15. That was below a level of 28 so it could be inferred that Institutional Investors were not showing any recognizable or substantial fear. This may actually may be surprising to many, because many investors are very worried about Libya and an overspill possibility in Saudi Arabia." (The above was posted on our March 2nd. update.)
Today's Update: March 23rd.
Below is the chart for the NYSE New Lows as of yesterday's close. Note that the number came in at 9 New Lows ... not very high, and not showing a lot of worry on the part of Institutional investors. (Remember that approximately 85% of Institutional investors have their core holdings in NYSE listed stocks.)
Although Institutions have been in Distribution for the past 2 1/2 weeks, they have shown reasonably controlled selling activity, which suggests that they were properly hedged before they started selling. Their actions of late are suggesting that they still have the opinion that the Bull Market is alive ... not that it hasn't been under stress lately with Japan, Libya, and other problems. None the less, it is remarkable that Institutional Investors have held their emotions and not gone into panic reactions like some others have.
You may recall that we had this discussion on March 2nd. ... a discussion about fear and panic levels of retail investors versus Institutional Investors. Here is a recap of that discussion followed by today's chart update and comments:
"It is often said that the VIX (Volatility Index) is used as a measurement of Fear levels for many investors. However, the VIX is utilized more by retail investors than Institutional investors as a trading tool.
What is not generally understood, is that Institutional Investors will often be hedging while the VIX is rising. That is why the NYSE's Down Volume should be looked at in conjunction with the VIX because the two indicators often show that they are in conflict with each other. Additionally, if you were to compare the amount of daily Institutional Selling to the VIX, you would see that there is a significant correlation between the two. (The daily action of both of these are reported on our Standard and Advanced investor sites.)
Market movements aren't simple by any means. Market movements are a reaction to a multitude of buying, selling, hedging, risk adjusting, and other actions by the big market players. Who are the big market players? For the sake of today's discussion, let's define them as entities that have the capability of initiating "program trades" for very large volumes.
When Fear seems to be kicking in, the VIX is usually rising to higher levels. However, if Institutional investors are fully hedged, then their fear levels are actually lower than the retail investor's fear level because they have some level of protection on their investments.
However, if Institutional Investors were to start panicking, then that would infer that they were not properly hedged, or that some "event" suddenly changed the risk/reward equation for their investment strategy. This is one of the reasons why I like to look at the daily levels of "New Lows" on the New York Stock Exchange (the NYSE).
The NYSE is where a significant amount of the "program trading" is initiated. (A lot of program trades are being filtered-out through other avenues these days, but enough generally remains in the NYSE for a statistically valid projection to be made.)
Which takes us back to discussing the New Lows again on the NYSE. The NYSE stocks have a larger Institutional investor ownership percentage than stocks from other indexes. I just checked the Institutional Investor "core holdings" list this morning, and it turned out that 84.5% of the "core holding" stocks were NYSE listed stocks.
So, the New Lows on the NYSE to some degree is a reflection of fear levels being exhibited by Institutional Investors.
So let's discuss some parameters to apply when looking at the NYSE New Lows ...
During the past few weeks, we had commented that a rise above 28 should be a red flag for investors to start being more observant of what is happening in other market areas such as technical indicators and/or changes in underlying fundamentals.
When you get close to a level of 28, you could be seeing elevated worry levels, but it generally isn't until the New Lows go above a level of 50 that panic selling activity starts to kick in by Institutional investors or "program trading" initiators. So, with this in mind, consider the NYSE New Lows on March 2nd. ... The New Lows on the NYSE came in at 15. That was below a level of 28 so it could be inferred that Institutional Investors were not showing any recognizable or substantial fear. This may actually may be surprising to many, because many investors are very worried about Libya and an overspill possibility in Saudi Arabia." (The above was posted on our March 2nd. update.)
Today's Update: March 23rd.
Below is the chart for the NYSE New Lows as of yesterday's close. Note that the number came in at 9 New Lows ... not very high, and not showing a lot of worry on the part of Institutional investors. (Remember that approximately 85% of Institutional investors have their core holdings in NYSE listed stocks.)
Although Institutions have been in Distribution for the past 2 1/2 weeks, they have shown reasonably controlled selling activity, which suggests that they were properly hedged before they started selling. Their actions of late are suggesting that they still have the opinion that the Bull Market is alive ... not that it hasn't been under stress lately with Japan, Libya, and other problems. None the less, it is remarkable that Institutional Investors have held their emotions and not gone into panic reactions like some others have.
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