The Stress Of Not Knowing

11/20/08 8:50 AM EST

Good Thursday morning...We begin the day with some selling pressure after the horrible jobless claims number.  The pre-market futures were a little green immediately before, and normally I would trot out some stats about how a big gap down on a jobless claims report is usually good for a snapback...but these are not normal times.

Last week, we touched on a measure of corporate insider activity for S&P 500 stocks from the great InsiderScore.com service (we have no affiliation with them other than being allowed to post their aggregate insider chart).  At the time, it showed a surge in buying interest for those large-cap stocks, but their measure for the broader market was still somewhat subdued.

No longer.  In the latest week, their market-wide measure shot to an all-time high.  As they note:

"Insider sentiment moved to its most bullish level ever during our 278-week tracking period (dating to the week ended July 29th, 2003) and initial data indicates that insiders are more bullish now than at any time since the two weeks immediately following the Black Monday market crash of October 1987.

The reading can be partially attributed to the SEC's closure on Veteran's Day, which pushed some disclosures into the most recent week. Regardless, our Weekly Score would have still hit a record without the extra data and insiders have been on a bull-run for four weeks now, taking part in an orgy of buying that is broad-based across sectors and market caps.

CEOs are helping to the lead charge, buying at abnormally high rates, and selling in some sectors is almost taboo at this point. Recent history and the irrational behavior of the market and its participants demands caution, but historically such sentiment spikes have signaled a bottom and insiders dropped the bullhorn last week and are now using a stadium PA system to sound their message. The question is whether anyone believes that message."

Here is the chart:

There are several other compelling indicators that I could point to as well, on a short-term time frame to go along with all the intermediate-term ones we've already discussed.

*  The Short-term Indicator Score moved to 79%, a level that as preceded a one- to three-day bounce every time since September, other than a two-day waterfall into the October 10th low.

*  The Equity-only Put/Call Ratio, which surged to a pessimistic extreme (yes, I know it's options expiration tomorrow).

*  The Intraday Cumulative TICK for both the NYSE and the Nasdaq, which despite the stabs into record selling pressure in that indicator, hadn't been enough to move the Cumulative measures into oversold territory until yesterday afternoon.  Now it is at a level that has been excellent at highlighting imminent bounces - we last saw these extremes on the mornings of October 10th and 13th, right before the explosive upside reversals.

That last one is the most compelling to me.  I've always favored the Cumulative TICK as a short-term tell when it moves to extremes, and it has held up exceedingly well during the crazy volatility over the past couple of months.  The fact that we're back down to these levels makes me say "hmmm...".

BUT...

Now we're twisting in no-man's land technically, with basically no comparisons in 110 years of market history - in terms of the price losses we've suffered, and also the inability to maintain a multi-month rally from the extremes we witnessed in October and earlier this month.

I don't care to guess where it may end.  I only care to take risks based on setups upon which I can define probabilities for success and the penalties for being wrong.  Since the market is not responding how it "should", it makes it exceedingly difficult to define that risk vs. reward.

I wouldn't be surprised by anything right now.  Another 5% haircut; a 10% rally; both in the same day...they all seem equally as likely.  Because it seems like we're standing right in the middle of a teeter-totter, with the slightest movement able to tip the board to yet another extreme, I've moved to cash and will have to wait things out until the movements seem to make some level of sense again.

Based on what we looked at above, if we would happen to tag the 2002 lows this morning (only about 20 pts below where the futures are trading right now, depending on what price you choose to use for the 2002 low), then I suspect we'd be in for another upside reversal, at least on a short-term time frame...but I wouldn't count on it lasting too long.

On a side note, tomorrow I'm leaving for my annual migration to the isolation of the northwoods of Wisconsin.  I've thought that there could be no worse time to go, but on further reflection I think there could be no better time.  The market is not making sense, and it will do some good to step away from the intraday ticks.  I'm sure my wife and kids would agree, as I've been as growly as they've ever seen over the past couple of weeks.  This means that my comments will be limited to brief end-of-day notes, and there may be some slight delays in some of the indicator updates.