IRA Investing: Indicators Gain Some Ground

Last week had something for everyone, as results were very mixed, depending upon what sector we analyze. The S&P 500 ended the week essentially unchanged, but the Value Line geometric average, which attempts to measure the price change of the average stock, was down 1.2%.

The general weakness was also evident in the advance/decline ratio, which showed 1,300 more stocks down than up. These are not positive factors, and they indicate that it is very unlikely that a sustainable advance is about to begin.

The financial sector suffered another drubbing, and I continue to feel that this sector could be in for further declines and almost certainly will not be a market leader in the next bull market advance, whenever that may occur.

The best news of the week, at least from my own point of view, is that my IRA was up 1.0% for the week, extending its lead over the market year to date.

There was some modest improvement in my indicators last week in response to the overall sloppy market and what I perceive to be a bit more fear growing within the ranks of small investors and speculators.

The most negative of my indicators remains the ratio of Nasdaq volume to NYSE volume. The ratio did improve just a bit last week but still has a 10-week moving average that is hitting record highs. A less speculative environment is needed before this indicator can show improvement.

Also negative, although poised to turn neutral, are the money flows into the Rydex family of mutual funds. Money is still going into the bullish funds rather than the bearish funds, but the difference appears to be narrowing somewhat.

The rest of my indicators are neutral. The ratio of odd-lot short sales to odd-lot purchases continues at a neutral level. Also neutral are the equity only put/call ratio and the difference in confidence levels between smart investors and dumb investors. Let's look now at an indicator that improved from bearish to neutral last week:

Click here for larger image.

This is a five-year chart of the ratio of total odd-lot sales (including short sales) to odd-lot purchases shown in red. The S&P 500 is shown in black, and the green trend lines relate to the indicator's average and its standard deviation. When odd-lot investors take extreme positions, either bullish or bearish, it is usually a good bet to go in the opposite direction.

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At the time of publication, Moore was long Sybase, Helmerich & Payne, U.S. Physical Therapy, Complete Production Services, Life Sciences Research and Sauer-Danfoss, although positions may change at any time.

Richard Moore, CFA, has 40 years of experience in various facets of the investment business. He has been employed by banks, mutual funds and investment advisory organizations during his career and has also owned retail and service businesses. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Moore appreciates your feedback; click here to send him an email.