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.

Crazy Investor Indicator 4 1 08

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. 


1 Response to “Updated Crazy Investor Indicator”

  1. 1 stacy April 2, 2008 at 10:58 am

    thanks for the Crazy Investor Indicator. What do you think about about a 21 day moving average of the Total Put Call ratio as a sentiment indicator of investors?
    i have noticed the P/C Ratio 21 day moving average has turned slightly bullish, 1.15. Also, noticed that as market prices move higher the P/C ratio has stayed above .90 and has moved higher on this last rally. Why would investors buy Puts as prices are rising rather than buy Calls? Any thoughts on the P/C Ratio?
    Thanks, Stacy

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