Updated Crazy Investor Indicator

I get a lot of requests for my crazy investor indicator that I came up with several years ago.  Right now, it’s telling me that investors are becoming very confident which seems great on the surface.  But, this is a contrarian indicator.  In really good markets, you buy when fear is elevated.  But, in a tough market (some would say a bear market) like we’re in, you can make just as much money selling when investors are confident and complacent than by buying when they’re scared.

In late December, investors became very complacent and that’s when I increased my short positions.  In January, the markets fell.  You can see by the picture above bears are quickly becoming bulls.  This doesn’t mean sell everything you own and go net short.  However, monitor the markets very closely over the next few days.  Today, was a good day but I’m still not happy with the volume.  We need more days like today on increasing volume.  That will show investors feel as if the train is leaving the station and they will start a buying panic.  I suspect we’ll see more of what we’ve seen since last October, sharp rallies that simply don’t last.  By the time everyone feels comfortable buying, the rally’s over.  That’s not what bull markets are made of.  Therefore, I’m enjoying my stocks going up, but not letting my guard down. 

Pretend you’ve been cheated on several times in the last few months and your significant other says the right stuff, dresses the right way, and acts the right way.  You may be tempted to say finally I have my old significant other back.  Ah.  The way things used to be.  But, then.  It happens.  Another “incident”.  Same old person.  That’s the stock market since October.  It lures you in to buying.  You get a violent couple of up days.  Maybe even sprinkled with some positive news.  Then, only to drift back down again.  That’s how bear markets do.  They suck you in.  So, just know who you’re dealing with.  It’s not that the significant other (excuse me, market) can’t change.  It can.  But, just know who you’re dealing with.  After all, we have a little history together. 

Don’t Get Confused

Every day the market gives us something different and it makes us feel different.  From frustration and fear to greed and confidence.  Ignore your emotions and rather focus on other investors and their emotions.  It’s a much easier trade to do that.  Focus on monitoring when the fear really spikes or confidence really spikes.  Those are extremes where we can really make some money or protect ourselves from losing a lot.

The path of least resistance is still down.  Let’s not kid ourselves.  This is still a sell the rally environment.  We will bottom at some point and it may be soon.  But, we need to let the market prove that to us before we really commit hard earned money.  I’m slightly long right now so I’m enjoying up days but I’ve re-established some shorts in recent days as I don’t trust any rally right now.  They are all on low volume and there’s just not enough real demand to cause me to make major adjustments.

I will still be buying good companies and sectors like tech when I see the opportunity.  But, overall, your strategy has to be to buy the fear and sell the greed.  Right now, we don’t really have either.  I’d say we’re leaning on the side of greed believe it or not.  My Crazy Investor Indicator which measures pessimism and confidence by investors is showing as much confidence now than we’ve seen since mid February right before we had a big decline.

So, let’s not get too confident in these rallies as they all been selling opportunities.  But, stay fairly neutral right now because we have many cross currents.  But, based on my work, I think selling the rallies will still be the most profitable move over the next few weeks. 

Commodities

The sell off I wrote about last week continues in commodities.  I’m seeing losses from 1-6% across the board.  Gold especially stands out back under $900.  I still have a target of $830 an ounce.