Here’s an interesting take on Nasdaq sentiment from Mark Hulbert (via CBS Marketwatch):

Consider the Hulbert Nasdaq Newsletter Sentiment Index (HNNSI), which represents the average recommended stock market exposure among a subset of short-term Nasdaq market timers tracked by the Hulbert Financial Digest. This is a useful sentiment measure on which to focus, since the Nasdaq market is one in which sentiment plays a particularly large role (remember the Internet bubble)?

The HNNSI’s latest level, at 80%, is dangerously high.
To put this current level of bullishness into perspective, consider that the HNNSI as recently as early February — at the depths of the January-February stock market correction — stood at minus 16.1%, or 96 percentage points below where it is today. That represents an extraordinary swing in sentiment for just 2-1/2 months.

In fact, to find another occasion on which the HNNSI was any higher than where it stands now, you have to go back to July 2000, almost 10 years ago. That earlier occasion, need I remind you, came just as the Internet bubble was unraveling and the mood was still quite giddy.

I have no idea the historical predictive power of that measure, but the reason I find it notable is because it fits very well with what we’re seeing from traders in the Rydex mutual fund family:

There is currently nearly 4 times more money “invested” in the leveraged Nasdaq 100 bull fund than the Nasdaq 100 bear fund at Rydex.  That is among the highest we’ve seen since these funds started gaining popularity.

The ratio did spike above 4 on March 27th, for only the second time in recent history.  The other was January 5th of this year – not a great time to be heavily long tech over the next several weeks.

There is a lot of focus at the moment on Greece, and the major spike in interest rates there today.

The chart below plots the yield on 6-month Greece Bills versus the S&P 500.  Note how the prior spike slightly preceded and then coincided with the January peak in the S&P.

Also note today’s move.  Could be a one-day wonder…but I wonder.

This post is out of the norm, but I just can’t resist.  It’s about Apple (AAPL), but more specifically the iPad, human behavior and why I think it’s due for a short-term dip.

First, let me get the actionable out of the way.  Apple stock recorded a perfected sell setup according to DeMark analysis on Thursday.  This has happened 8 other times since the March 2009 market bottom:  3/23/09, 4/16/09, 6/5/09, 7/23/09, 9/17/09, 11/17/09, 1/4/10, 3/9/10.

Check out Apple’s price action in the week or so following the dates.  Not great.

Now for the context.

I spent an inordinate amount of time over the weekend doing line checks (get a life, right?).  I obviously saw the news reports about Apple stores, but I saw no shortages whatsoever, especially at Best Buy.  You could get in and out in 5 minutes…either there’s not much demand, or Apple really stocked them (which I didn’t think was likely because they like the hype of “sellouts”).

Sunday afternoon Twitter blew up with reports from a Piper analyst that suggested 700k iPads were sold.  I thought that was ridiculous, especially when I found out he got that number by counting ~700 people at an Apple store and said that was double the people he counted for the iPhone, so he doubled that estimate.  I laughed out loud, but everyone took the estimate as gospel.  I couldn’t believe it.

That was especially the case because there were so many mixed reviews.  Everyone loved the screen, but the clear conclusion was that as of now, it’s just a luxury entertainment device.  With wifi problems.  And no Flash support.  Which is too heavy.  And awkward for typing.  And slippery.  And smudgy.  Without a camera.  Or USB.  Or Microsoft Office support.  During the worst employment scenario in 80 years.

I think there will be heavier-than-expected returns, and a steeper-than-expected drop-off after the first weekend.  Those that rushed out are either early adopters who will buy everything, or hangers-on that want to look cool.  After spending $1000 (after taxes, extended warranties, add-ons, etc), they feel they have to justify the purchase.  That shouldn’t last long.

Perhaps this cartoon says it all about the hype:

Like I said, this isn’t my usual cup of tea.  But it’s an extraordinarily interesting moment for Apple.  And since that one stock makes up 17% of the Nasdaq 100, more than triple the next largest component, as goes Apple so goes the NDX.

Maybe Thursday’s announcement of the next installment of the iPhone will bring enough enhancements to justify all the price upgrades that came out on Monday (I hope so, since I own an iPhone and bemoan the missing features).  And maybe their staggered rollout plan (3G, then foreign sales) will also be enough to keep shoveling coal on the fire.

But for now – like the next week or so – I think the chances are better for weakness as opposed to a continuation of the momentum…a break below $235 would be good confirmation of that.  Thursday’s event is a wild card, so we’ll have to see how that goes.

I haven’t studied this at all, but it’s an interesting point.

Via The Growth Stock Wire:

The blue circles highlight the last five VIX option-expiration dates.

Following October expiration, the November VIX call options were much more expensive than the November puts. When November options expired, the December VIX call options were more expensive than the puts. Ditto for when the December and January options expired as well.

The exception was after the February VIX options expired. March puts and calls were evenly priced. This was the only time in the past six months the VIX didn’t spike higher… and the only time stocks didn’t drop lower immediately following VIX options expiration.

So in four of the past five months, VIX call options were much more expensive than the puts following option-expiration day. The market sold off in every case.

And that brings us to today:

VIX options for March expired yesterday. The VIX closed at just under 17. The VIX April 17 put options are trading for $0.30 while the April 17 calls are $3.30 – eleven times more expensive.

My Dad admires a man he used to work for, always saying “I wish I was that rich.”

And he is rich, holding somewhere around $2 million in Wisconsin timberland.  But he’s always short on cash, and has to borrow to meet some basic monthly expenses.  That’s usually fine, but if things turn south,  then he may not be able to borrow, or sell some land to generate cash, and could run into a heap of trouble.  He’s asset-rich, but cash-poor.

Mutual fund managers seem to be in the same boat.

The chart below shows the total amount of liquid assets (i.e. cash) held by US equity mutual funds.  As of December, it dropped to 3.6% of total assets.  That’s the 2nd-lowest amount in history, next to June and July of 2007.

This has been a decent contrary sentiment indicator, as extremely low levels of cash tend to lead to subpar performance in stocks in the months ahead, and vice-versa.  Certainly there are good reasons to hold little cash right now (exceptionally low yields, strict fund charters against market timing, etc.).  So maybe this isn’t as effective an indicator as it used to be.

But personally, I’d sure like to see a larger cash cushion, just so I felt more comfortable that in the next leg lower in equities, we won’t have a rush of mutual fund managers selling stocks to meet redemptions instead of being able to pay them out of their cash hoard.

A subscription to sentimenTrader gives you daily in-depth sentiment research, charts and analysis.  Find out more here.

This addresses something we touched on in early January when folks were stating that there was excessive *pessimism* among individual investors because of poor inflows to mutual funds.

The ETF industry has exploded since the March bounce, and there are now 836 such instruments issued by 35 providers with a total market capitalization of $782 billion.

Source:  Zero Hedge