The weekly reading on small speculators has been one of the very best short-term indicators for the equity markets over the course of the last year. These small speculators have been on the wrong side of the trade at just about every single point during the course of the downturn early last year and during the upturn throughout the year.
Most interesting, they have been betting against the big money. As the State Street data showed last week, institutions are becoming a bit more bullish on the equity rally. Small speculators, on the other hand, have been skeptical of the rally since the March lows and remain firmly in the bear camp despite becoming less bearish than they were just a few weeks ago. As a contrarian indicator, it would be wise to continue to bet against these traders and continue to bet with the big money who continue to reallocate capital into the equity markets.
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