A theme I have heard in the media over and over is that the market is rising in anticipation of Ben Bernanke's Jackson Hole speech on Friday. I have yet to hear from a single bull that the reason they are buying is Bernanke's speech. I am hearing bears pointing to Friday as a bearish catalyst because everybody will surely be disappointed.
Investors continued to buy puts yesterday despite the steep rise in the market. Rydex traders reversed the previous days bearish bets but are still positioned very bearishly. Investors Intelligence bulls have pulled back to 40%, which is normally slightly bullish, but is still far above the 30% level seen last Summer. Given the decline in the market Investors Intelligence bulls should be a lot lower, but this data point seems to be an outlier versus dozens of other sentiment indicators I look at. Overall, the weight of the evidence points to very bearish market participants.
If we rally into Friday's Jackson Hole speech I will likely use the strength to hedge somewhat. However, if we decline into Friday's speech I will be inclined to remain unhedged.