Stocks continued to edge higher Wednesday as pre-holiday volume remains low. The volume in the S&P futures was the lowest since just before the Memorial Day holiday. The futures are lower in early trading and are close to breaking below the lows of the past three days.
The analysis of the most recent Commitments of Traders (COT) data from John Person reveals that the small speculators are heavily on the long side of the futures. They historically are wrong on the markets so this is used as a contrary indicator.
The individual investors, according to the AAII, became even more bullish last week as 51.92% are now bullish, up from 46.11% last week. This is well above the long-term average of 39%.
The McClellan oscillator-which warned of the top in early August (The "Real Reason" for the Market's Plunge)-has formed a short-term negative divergence. This formation is consistent with a tired market while the positive intermediate-term signals suggest a correction will be a buying opportunity.
The latest short interest data was released on Tuesday and-as always-it's quite interesting. I have found that the Wall Street Journal presents the data in one of the most easy to use formats.
I look at not only the changes in short interest but also the days to cover or the short interest ratio. It is calculated by dividing the short interest by the average daily volume. In the latest data, four stocks stood out and looking at the charts can help one decide whether the short positions will be rewarded by lower prices.
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