IRA Investing: The Volatility Continues
Richard Moore, CFA, writes about strategies for asset allocation in IRAs.
Just looking at the end result of last week, we might be tempted to categorize the market action as uneventful. However, as we know, it was anything but. The largest market gain in five years on Tuesday was followed by additional weakness leading to the Bear Stearns(BSC Quote) collapse. This is certainly the type of activity that is seen around market bottoms, but my indicators were mixed last week, leading me to maintain my previous outlook and strategy. I have previously discussed the two indicators that are giving extremely bullish readings. The equity put/call ratio on the CBOE increased even further last week and is now at the highest reading in the last five years. Friday's ratio was an outlier on the high side. The confidence level of smart investors is moderately high and increasing while the confidence level of dumb investors continues to decline, indicating that these less sophisticated market participants are expecting some form of dire economic collapse. The difference in confidence levels is at a very bullish extreme. On the bearish side, we still have a level of Nasdaq volume that is too high when compared with NYSE volume. This indicator is improving but needs to decline to a level around 1.3 for a few weeks to upgrade the indicator to neutral. The level of odd-lot sales compared with odd-lot purchases declined last week as smaller investors bought into the big rally on Tuesday. Although the indicator remains neutral, we need to see more skepticism among these investors when the market rallies to turn this indicator positive. Money flows into bearish Rydex Funds compared to the flows into bullish funds continues to improve but is still neutral. Another indicator that shows the brief swing to optimism by small investors last week is the ratio of odd lot short sales to odd lot purchases. Let's look at a chart of that indicator now:![]() |
| Click here for larger image. |
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