The nice thing about a 50 day simple moving average is that it is a lot easier to guess where it might be going than a number that starts with a blank slate each day. With the 50 day SMA, for instance, you can start by looking at the numbers that are going to be scrolling off of the 50 day time horizon used for the calculation, then assume they are going to be replaced numbers similar to the ones currently being printed and…voila: you can tell the future at least as well as the next guru.
In the case of the ISEE, it was not that difficult for me to gaze into the future on March 28th and discern that the ISEE 50 day SMA would be flashing a buy signal for the entire month of April, which is exactly what has happened. While it may be a little harder to predict the future right now, my educated guess is that April 16th is going to turn out to be the second half of a double bottom in the SMA 50, with the first half coming back in October.
One amazing statistic that partly explains why the SMA has trended so low in April is that since January, the ISEE has closed above the lifetime mean of 154 on only one day, when it posted a 156 back on February 16th. Today’s ISEE reading has been slowly trending up all day and sits at 139 of this writing. Looking at today’s numbers and data for the past week, it appears that investor sentiment is moving away from extreme bearishness and back toward the relative complacency that the VIX has hinted at.
Even with the possibility of a double bottom, the ISEE call to put ratio remains at a level that is historically associated with several months of continued bullish activity in the broader markets, as the chart below demonstrates. As more bears grow tired of fighting the trend, they could help to fuel the next leg up.