Short-term Outlook (1-5 Days):  25% Short (from 10/18 at 117.65)

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Equity Indicators - Updates and Extremes

NYSE Intraday TICK

There was some panic yesterday.  It wasn't as great as some prior episodes, but it was still panic.

We know that from the NYSE TICK.  Recall that this indicator tells us how many securities on the NYSE last traded on an uptick minus those that last traded on a downtick.  So a reading of -1000, for example, would mean that 1000 more stocks traded on a downtick than an uptick.  That's some serious selling pressure.

Yesterday, we saw something we have rarely seen.  The TICK hit -1600 during the worst of the mini-mini-panic.  The only other times we've seen that in the past 10 years were 9/17/01 (right after 9/11) and 5/6/10 (the Flash Crash).

I'm using Bloomberg data, which goes back to 1989.  The TICK is something that the various data vendors compute differently, so you will almost certainly have different numbers.  It doesn't really matter, so long as you're consistent in using the same vendor to compare current vs. historical readings.

The table below shows how the S&P 500 performed the given number of days after the TICK hit at least -1600 during the trading day.

It's not shown on the table, but the best short-term performance was 2 days later when the S&P was up 73% of the time.  Overall, the results going forward were OK, but not great and not that different from random - except for three months later when the results were impressively positive.

There were five other times we saw this when the S&P was very near a multi-month high (7/19/95, 3/8/96, 4/8/96, 12/6/96 and 4/4/00).  A somewhat consistent pattern among them was that the S&P rallied in the short-term, in all cases but one just under the previous multi-month high.  But then it fell back and corrected once again.

Rydex Nasdaq 100 Bull Ratio (Un-leveraged and Leveraged)

A little over a week ago, we looked at the behavior of traders in the Rydex family of mutual funds, specifically their trading in the Nasdaq 100 (NDX) index funds.

At the time, traders had invested almost 30 times more money in the un-leveraged long fund than they had the un-leveraged short fund for the NDX.  That was troubling, but the potential silver lining was that they weren't nearly as aggressive in the leveraged funds.

We saw a curious thing yesterday, though.  Despite the worst sell-off in the NDX in a couple of months (and one of the largest negative TICK readings in history), Rydex traders actually became more bullish.  To be more precise, they pulled money from the short funds which would profit on a further slide in the NDX.

The result is a new modern-day record high in the un-leveraged Bull Ratio.

The leveraged ratio also finally popped higher, with traders now having 3 times more money in the leveraged long fund than the leveraged short fund.

That's still below prior peaks in optimism when the ratio neared 4, but as we can see from the chart, it's still very high.  While the NDX still managed to scramble higher after a some of the other times the ratio hit 3, it was choppy, and every time the short-term gains were erased at some point.

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