I like paying more attention to investor pyschology than specific money flows. When you get one side of the market leaning too heavily in one direction, I have to at least consider going the other way regardless of what money flow tells me. When the newsletter writers are wildly bullish, that tells me everyone else probably is too (i.e. the mutual fund, hedge fund guys, etc). It also depends on your time frame. If I was playing June put options, I'd be trying to call the top much more accurately. For me to make money, the DOW has to be below 8550 by the 3rd week of Sept. When you combine the high level of complaceny plus the historically weak seasonality patterns this time of year (esp Aug, Sept), I think it's a high probability play. Add to that my macro views which aren't especially bullish. Back to investor pyschology vs money flow. It seems much easier to gauge sentiment rather than what people are doing with their money. Even the VIX, VXN, etc have their detractors. You could argue the OEX is less significant than it use to be etc. When sentiment gets extreme, it's so easy to see it. Time magazine or Newsweek will have a big growling bear on its cover. A regular news show like Larry King will start to have market experts on to try and comfort investors. A downward trend will have been in place for so long, that's the mainstream media's cue to start to talk about it. It's harder to see bullish sentiment, especially in a bear market like this. But that Investors Intelligence number jumped out at me, the lowest number of bears I believe since '92. That's too important to ignore.
Nice post. I was born in the Hoover admin. The Whitehouse was a familiar place for me at several times as well. This sitation we're in now is too bad and is getting harder and harder to remedy. The largest single force out there now is sidelined money. It isn't coming in until the quality of things picks up and that isn't very possible to pull off. I am planning on appreciating my capital at a fairly good clip by just focussing on the islands of opportunity that come up. turning money over takes less time for the same rewards but i hing it is imprtant to be picky. For the first time in years I am 100 cash during a tour east. I spent a few days getting the troops ready to get me out and i just got done. I wish the times hadn't gotten so bad we had a perfect seqway into global until the world ID'ed the "enemy". That PEW world study that came out this week was soo bad that most people apparently think this stuff is irreversable.