Market Sentiment 03 (Jan 12 - Jun 14)

[winston]

SENTIMENT INDICATORS

VIX: 11.36; -0.67
VXN: 13.45; -0.75
VXO: 11; -0.32

Much was made of the VIX breaking below the trading range of the past year, approaching the quick dip from March 2013. Surely this will bring down hellfire and ruin upon the market.

It did this in March 2013 as noted. The market cruised higher. A low VIX CAN mean a selloff is coming, but it is certainly no guarantee one is coming.

VIX can show you short term fluctuations in a trending market. It is best, however, at extremes (as are all indicators, really). Extreme selling that sees it spiking. Rising as the stock market rises to new highs. That latter is the most worrisome and accurate warning VIX shows: if it rises as stocks rise then turmoil underlies the market's rise as money is moving out and options are betting on some serious movement. That is not happening now.


Put/Call Ratio (CBOE): 0.76; -0.11

Bulls and Bears:

Bulls up again, getting closer to levels that have upended upside moves: 57.2% versus 55.1%

Bears fade further: 18.3% versus 19.4%

Theory: When everyone is bullish and has put all their capital to work, where does the ammunition to drive the market come from? There is always new money to start a new year. After that is used will more money be coming? That is the question.

Note the extreme bullishness: it was this high in 2007 at the crash, in early 2005 as well.


Bulls: 57.2% versus 55.1% vs 55.7

Background: Last undercut 35%, the threshold for bullishness, in early June 2012.

Bears: 18.3% versus 19.4% vs 20.6%


Background: Over 35% is the threshold to be really be a good upside indicator.

Source: Investment House