Nasdaq Composite index

nasdaq arithmeticnasdaq log

The tech stocks, represented by the Nasdaq, have enjoyed quite a bit of (irrational?) exuberance lately with the upcoming Facebook IPO, the Superbowl and  Greece’s soon to come “no-default” default. But the simple fact that this index is still down by 40% since the highs some twelve years ago, remains. Also, despite the longer timeframes involved,  the “picture” is essentially identical to most other indices and or individual stocks. The message is that this can turn any moment.

Some might argue that the market is full of negativity, pessimism and so on, but looking at the standard gauges like Put/Call ratios, sentiment indicators, volatility and so on , they clearly indicate the contrary. Not to bore the reader, we will show only two, the cash ratio at mutual funds in the US(see link),and a sentiment index for the Nasdaq;

Mutual Fund Cash Levels - Google Chrome_2012-02-05_13-38-01Market Harmonics - Nasdaq Sentiment Index - Google Chrome_2012-02-05_13-19-14

The sentiment is running at an all time high, at least for this 10+ year period. The cash levels at mutual funds are at an all time low at about 3.5% of assets held. The message here is that there is no one left to buy nor any money left to buy. Volatility – I am now boring you- that is now around 17 coming off 47 or so a few months ago, tells the same story;

VIX feb 2012

Here I have overlaid the onto a chart of the VIX, or volatility index. The current wisdom is that you should wait for the markets to calm down, which clearly is exactly what you should not do, at least not for the past 14 or so years. The zero line is just a base line set at the start of this chart, it does not represent a particular value! Note that when the S&P goes up, the VIX goes down and vice versa. This is logical as one should buy  when the proverbial blood is flowing in the streets. Obviously not now!