Short-term Risk Level:  5     

Bottom Line

After Wednesday's monster Arms Index reading, we got the almost-requisite one-day bounce.  There are a few moderately positive and negative factors at play now, so once again there isn't much of an edge short-term.

Sentiment

According to InsiderScore.com, corporate insider data became a bit worse this week, pushing the Buy/Sell Ratio further into bearish (for the market) territory.

To borrow from their most recent commentary:

There were some encouraging and discouraging signals from insiders last week. On the one hand, the number of buyers rose 78% week-over-week and the ratio of sellers to buyers narrowed from nearly 3-to-1 a week earlier to closer to 2-to-1. On the other hand, the number of sellers was the highest since the week ended May 31st. The Technology sector was the main negative driver as sentiment by one measure - our Industry Score - moved to its worst level in a year.

This measure is more effective when we see a rush of insider buying (witness August) as opposed to selling.  Still, when the Buy/Sell Ratio was between -1.2 and -1.6, a month later the S&P 500 was positive 47% of the time, averaging -0.9%.  Not terrible, but certainly not great, either.

Technicals, Seasonality, Etc.

It has generally not been a good sign to see a failed gap up after a down day like Wednesday.

When the S&P lost at least -2%, then gapped up the next day and closed below its open, never surpassing the high of the big down day, then over the next 4 sessions the S&P showed a positive return 2 times out of 11 instances, averaging -1.5%.

There has frequently been a seasonal weak spot in the middle part of November, before the positive bias kicks in as we head into the Thanksgiving holiday.  That would argue (very modestly) for weaker-than-average returns during the next 3-4 sessions.

On the positive side, we have an oversold Cumulative TICK and STEM.MR Model.  The market has responded well since August to these extremes.

So the price pattern and seasonality is mildly negative, while a couple of reliable indicators are positive.  That doesn't give much of an edge, but we'd lean positive as long as the S&P remains above Wednesday's low.

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Intermediate-term Risk Level:  5     

Bottom Line

Sentiment is mixed among our intermediate-term indicators, with some intriguing bullish and bearish extremes.  A positive bias from October should continue, but we would back off if the early November lows fail to hold up.

Sentiment

In early- to mid-October, we discussed several signs of excessive pessimism (suggesting a market rally).  Subsequent to that, we went over some signs of buying thrusts and historic momentum, which also argued for still-higher prices.

Stocks have held up reasonably well, and sentiment has shifted significantly in a few measures.  It's most notable in the Rydex family of mutual funds, where there's too much money flowing into bullish funds.

But then we also see things like a spike in the Arms Index on a down day, which has preceded rallies with regularity.

And despite a massive October rally, speculative penny stock traders actually reduced their trading activity last month.  Share volume, dollar volume and transaction volume are all dragging along at or near decade lows.

The only other times volume has been this depressed were near the prior two bear market lows in the falls of 2002 and 2008.

We currently have few extremes among our sentiment indicators, and those that are mostly cancel each other out, so there is no clear bias either way.

Technicals, Seasonality, Etc.

Seasonally, we're currently in the best time of the year, and the Seasonality Index has turned very positive.

Technically, many stocks are in a kind of no-man's land, and the benchmark S&P 500 has been whipping violently within a weeks-long trading range.  What makes this so difficult is that there is a very intriguing analog to how the market behaved following the 1987 crash, but also to how it behaved in the spring of 2008.

We should know soon which one is more likely.  As long as the S&P 500 doesn't drop below 1215ish for multiple sessions, the positive bias from October should continue to win out.

Things to keep in mind

Date	Description	Priority
11/10	Very low penny stock volume	Medium
11/09	Arms Index Goes Above 6	High
11/03	Rydex traders getting "toppy"	Medium
10/19	Seasonality into year-end	Medium
10/18	Surge in Nasdaq Up Volume	High
10/12	Strong price persistence	Medium
10/04	Rydex traders flee to cash	High
09/13	SMI breaks long-term trend	Low
09/02	Low ratio of cash to equities	Low
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