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Updated Sentiment
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Updated Sentiment

by MoleJune 3, 2011

This is your sentiment update. Mole and I will get to the seasonality update, but it seems we were both quite busy on a short week.

I would just like to say that I have seen ZERO selling capitulation… which means if you are a dip buyer, caveat emptor.

I have been looking for another sentiment index to add to my arsenal, and I have finally found one. I have ignored market vane and consensus inc., because a simple chart will tell you those surveys are hard to use for timing.

So I found HFDSI, the Hulbert Financial Digest daily sentiment index. I love it. It is similar to II (institutional investors survey), but daily and a different calculation.

mole: that’s awesome – getting only weekly updates is one of the issues I have with AAII.

Wow did we get high on that last rally!

So after some mathematical manipulation I incorporated it into my index:

As you can see it does not change things much, but it does help smooth out my bollinger bands.

Also I added double bollinger bands and 7 week change on a composite chart for maximum coolness. The bollinger bands below are different time lengths; I owe that idea to RBW and Mole.

So my sentiment survey indicators may be entering a “buy” zone, but I am still being *very* patient. I want capitulation. Also the 7 week change can go more negative or stay negative a bit longer.

Mole: ‘Buy zone’ means nothing these days – the only edge to be had when it comes to sentiment in the past two years is to wait for extreme readings and even then we have been disappointed.

Here is the raw value of my index. Notice that the momentum signals may start to signal  “buys,” but one must keep in mind that we could drop along ways from here before we actually have a bunch of bears in the market.

So you can see we do not have that many bears, just yet. And put volume would jive with that…

Here is yesterday’s OCC (all equity all exchange) put volume of 7MM. Today may change that, but I am looking for 1-3 days in excess of 8MM puts.

All that being said, today we may have surpassed 8MM, which could mean we are nearing a potential swing low. However, I still recommend being patient and waiting for some “real” panic volume.

Here is the NAZ COT

Still no liquidation of a crowded long trade….

For due diligence, the economic surprise index is quite bullish looking.

Economic surprise index:

Here you can clearly see, one does not want to be plunging short on economic “misses.”

Mole: Exactly – this is why the news does not matter. Wouldn’t you think that anything who’s connected gets those reports way in advance of the crowd? Let’s not kid ourselves – by the time an of those ‘surprises’ make the news institutional traders have long been selling and are ready to buy the dip. I maintain: The news does not matter.

Lastly, a couple comments on seasonality.

Here is the VIX with Quartiles as opposed to standard deviations. I use quartiles because the VIX is log normal or not linear, and a standard deviation is normal. More specifically, even if one logs the VIX to normalize it, they will still find that it is skewed, which means the only real way to run the data is to use quartiles. I know you dont care about that, but that saves me explaining it on Disqus…

Mole: Here’s a great page on quartiles – it’s not as complicated as you may think – no PHD in math required 😉

Clearly there are bears, but I see no panic! I buy when emotional, moving average following, MACD following, Stochastic following traders who do not watch volume start to panic. I will admit I went long for a gap fill this am….. NEWS IS IRRELEVANT. Jobs have sucked for 2 years and today matters? I am done with the gap trade, and I am not swinging long here.

We are in summer volume season and poor seasonality season…. The ISEE equity today (intraday) is miles and miles away from beartard capitulation. Or in other words, swinging long will take some decent selling for me to step in 😉

Here are some monthly return bell curves for the S&P.

I added this just to show you that there is no edge in going long in JUNE. July has positive returns, but it does not exactly compensate you for your risk. The key here is that December is so far skewed to positive (left), while JUNE is the opposite of that. July can be a decent month, nevertheless; mole and I will get to all of that later…. sentiment turns then too….

So bottom line, have patience.

I wish you all the best of luck trading.

-Volar


About The Author
Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.
  • Anonymous

    Fascinating stuff, thanks Volar

  • tradingmom

    Interesting compression on the Mole bubble….would love some discussion on what this means:-)

  • volar

    mole uses 2 different bollinger bands (not stdevs but time horizons).

    Or a better counter trend signal is established if prices is outside of two different bollinger band time horizon intervals.

    The first chart is the same time measurement with multiple standard deviations.

    the 2nd chart uses the same standard deviation over two different time horizons. Brilliant Idea from mole and RBW

    does that help?

  • volar

    thx mate

  • bisq

    Stellar post Volar.   My instinct told me i was covering too early 48 hours ago as we hadnt seen exhaustion. I love using sentiment indicators to guage the big swing trades. Im kicking myself this week but its a lesson learnt.  I still feel i would rather be short than flat or long but am a bit scared of an out the blue face rip. I’ll go home tonight flat and if i miss the selling climax next week so beit. I think we are going to get another bite of the cherry to short should we see a puke down to 1250-75 , sometime in July.

  • Anonymous

    love the post Volar. 

  • tradingmom

    Thanks…its beyond me, so I’ll just have to take your word for it.  I’ll revisit over the weekend.  Anyway, it is fascinating how it works.

  • Anonymous

    EUR is a tempting short from here

  • Anonymous

    is that  bearish divergence at the most recent 1.464 high from the previous high with the blue spike
     in the Euro 1000T chart?

  • Anonymous

    Fascinating stuff mate, this is really really impressive work!

  • volar

    thx man.. i really dig the HFDSI; really like the calculation behind the index. It is like market vane, but it works better. BTW huge coin on that silver trade ;0)

    Anyone seen amotka?

  • nyse

    I love this. Thank you, sir.

  • Anonymous

    I was thinking of him the other day. 

    I strongly suspect he didnt take advice and blew up his account

    Anyone know for sure?

  • Anonymous

    I was wondering where she gone too.

  • Anonymous

    The last I remember, I think he/she said something about some bad silver trades and moving to paper trading or something.

  • Anonymous

    Shit I didnt know she was a girl 

  • Anonymous

    It is still a mystery. I propose we refer to Amokta as “it”

  • volar

    She is a he according to RBW….

    As for the blow up….I hope that is not the case….

    That slut silver blew me up once or twice too …

  • Anonymous

    She is a SHE as per RBW.

  • Anonymous

    Thanks for the mail Mole

  • nyse

    Yeah, and the clarification too. I love this place. I feel I am really getting better listening to you lot. Drinks on me tonight, okay?

  • Anonymous

    Good stuff as usual Volar.

    Hey, I’ve got to share a strategy that I put into play today that worked very well.  

    I’ve been net short the S&P for the last three trading days.  When the market opened, I thought that this could be a pretty exciting day.  Then by 10:30 my excitement began to be snuffed out.   So I decided to go work in my shed for awhile.  I came back in about an hour later and things looked a little better but it looked like one of those days that was set up to piss everybody off.  

    About 1:30 PM, things looked kind of bleak so I went out and mowed my lawn.  That took up about a hour and a half on my ride on mower.  

    About 3 PM, I took a shower after which I made myself something to eat.  

    And now it is 4 Minutes before the close and we are near the Low of the Day.

    See, my strategy worked like a charm.     🙂

  • Anonymous

    Gotz…to…finish…above…1300

    Like it matters. LOL!

     

  • http://thebhbgroup.com TheBHBgroup

    Mole…thank you for the email…its much appreciated…subs should all be thankful for the great service here…cheers mate!

  • Anonymous

    What amazes me is that VIX has hardly moved despite the drop today. It tells me that protection to the downside is not contemplated now and that complacency abounds. 

    Looks like a recipe for a bloodbath. Love it!

  • Anonymous

    Ditto that.  

  • volar

    FYI all i added the NAZ cot and made some changes on the rate of change chart to show how long we stay negative. Mole alluded to that nicely

  • raised_by_wolves

    I thought Amokta was a girl for the longest time because of his chatty nature. He eventually corrected me. After that, I still joked about him being a “girl” as in “oh, you’re such a girl” (so figuratively, not literally).

  • raised_by_wolves

    Amokta eventually corrected me on that. (Not the first couple times though!)

  • Anonymous

    An amazing day for da Bears. I wish I were laid-off already. All I could do was some “eye-ball” trading primarily on the NQs. I noticed that our market leaders tech & small caps had a tough time today with really a weak bounce compared to SPY and DIA – that is telling IMHO.

    Maybe a relief rally or two next week, but now, there’s so much over-head supply…

    The dollar drop has be worried, how long can the EURO keep it’s trend up?

  • volar

    ditto that

  • volar

    u r welcome, glad u enjoy it

  • raised_by_wolves

    Especially now that Amokta is gone, let’s show him some respect. So, let’s refer to him in the masculine from now on. Hopefully, he’ll be back after having learned consistency by paper trading.

  • bisq

    “”

  • raised_by_wolves

    Based on his comments here, I know that Amokta didn’t take your advice or Mole’s, until it was to late anyway, and experienced a significant draw down due the silver crash. I don’t think he was trading on any kind of margin so don’t think he could have gone to zero. Hungry Joe and I remember Amokta said he was going to paper trade for awhile.

    Hopefully we’ll see him again someday.

    I’ll always remember Amokta by one of his avatars: silver bull.

  • raised_by_wolves

    Volar, thanks for hooking me up. Is SPX having ~25% higher daily sentiment than gold likely an edge or not?

  • volar

    Glad u like it.. sent u email

  • http://practicalt.blogspot.com/ Gold_Gerb

    Did the SPX get below the March 1 candle finally? yes it did.

    Climbed on-board short 11am, whipsawed out on the rise to 1pm.
    ah well.  tomorrow Monday is another day.

  • Anonymous

    i decided to close my QQQ puts today just few seconds before the market closed for them. they were front month (June17) and one shouldn’t fuck with front month puts, even if they were ITM for slightly more than i paid for them – these things are subject to quick changes nowadays.

    but mainly the reason i closed them, is that i am lost here. market has been behaving weird lately and today was no exception. A hefty decline, COMP down 1.46%, without any significant volume, HG, E/U, A/J all going up. Plus oversold NQ on hourly, with support looming at 2282 – all too risky to hold the puts here, something just doesn’t feel right. We might plunge from here, true, but we also might have some sort of another fuck you bears rallies here.

    oh, and COMP almost touched lower BB band – so it’s a slow drift downwards or another range melt up to the upper BB. in both cases, there will be time to reenter the trade.

    http://www.uploadgeek.com/share-D4A3_4DE947F0.html

    will reevaluate on monday and make a plan then.

  • Anonymous

    I am heartened at your cool-headed approach of avoiding hope & greed.  Sadly, I too often tend to fall into the psychology of hopeful investor.  And hope always has burned a hole in my pocket.  I haven’t invested in a subscription here because I am too busy with my real job to be able to react to fast paced attention required of “evil speculation”.  But I may join for a month or two just as a reward for the thanks I owe for keeping my money in my pocket rather than making wild-eyed ***HOPEFUL*** moves even when everything inside me is screaming, “Don’t let this one get away!”

    Because I keep an arm’s length from the minute-by-minute moves here, I am able to see the forest rather than the trees.  So a quick drive-by thanks to mole & volar & crew.  Your work here is impressive, to say the least.  Thanks!

  • Anonymous

    Prudent. There’s likely to be positive news generated over the weekend to help goose the markets. Technically, we are at the bottom of the trend-channel, so likely means some kinda bounce. And frankly with the Fed doing it’s thing day in and out, there’s always some chance a rip higher. Better to have a wash or small profit that hanging onto decaying OTM options.

    However, this is how I think Monday will play out: a drop at the open after overnight Asian/Eur absorbs today’s action, followed by a rally to ~131.5 or so and then sideways to down into the close. Rinse repeat a day or two more.

  • Anonymous

    forgot to mention VIX, of course. this thing was one of the main reasons that made me think the big guys were not participating in this plunge today. at least not in masses. and the big guys just love to make things complicated for us small guys.

    bottom line: something is fishy here.

  • raised_by_wolves

    I climbed on board too and then sold puts to stay on board. I started a short IWM, long something else position (like gold or Dow which have [edit: I forgot what I was going to say; that’s like me to trail off mid-sentence]), which I’ll finish sculpting next week.

  • raised_by_wolves

    My risk-on/off indicators are all offering different opinions right now. RUT to DJI looks possibly bearish, JJC to UUP looks possibly bullish, JNK to IEF looks so bearish, etc. They are usually more in agreement.

  • http://twitter.com/Scrillhound Scrillhound

    Anyone like to create systems that suck?  I’ve been tracking one that shits the bed.  Wrote a blog post about it.

    http://2.bp.blogspot.com/-bYmUgFtWLyU/TelkKQbRGsI/AAAAAAAAAeo/LgOuISwu9l8/s1600/NQLoser.png

  • Anonymous

    Lowered margin req’s tells me treasuries may need some support in the coming days…

  • Anonymous

    Any chance we could short it?  😉

  • Anonymous

    I wonder if the lack of action on VIX was due to pre-market fall. We have rallied since open, more or less. TRIN has been in the neutral zone as with VIX until mid afternoon.
     

  • Anonymous

    Mole – can you update the daily zero? Thx.

  • http://practicalt.blogspot.com/ Gold_Gerb

    I can a see a reversal coming soon, wait for it, wait…..wait…..wait….
    😉
    [think Pretcher]

  • http://practicalt.blogspot.com/ Gold_Gerb

    throw in a babe too.
    thnx.

  • http://twitter.com/Scrillhound Scrillhound

    never fails

  • http://evilspeculator.com molecool

    Actually, that is an awesome system. Just trade the inverse!

  • nyse

    Where is your blog post?

  • http://twitter.com/Scrillhound Scrillhound

     Sorry, I didn’t put a link to it because Mole doesn’t like people throwing links everywhere… Click my disqus handle or here – http://bit.ly/9zUzXE

  • http://twitter.com/Scrillhound Scrillhound

    Right?  Sometimes it’s easier to find something that sucks and flip it than overtweak/ optimize something trying to scratch out gains.

  • Anonymous

    Coming back from a big drawdown is a very manly thing to do. I’ve had to do it a few times 🙂 Wins make me sloppy and losses make me hungry.

    Seriously, Amotka was warned repeatedly that his trading style was about to hurt him.

    He surely wasnt going to be the first trader in the history of traders to make consistent profits without a set in stone method that he woke up and did, every single day.

    I’m on holiday in Paris, but Id rather go home than miss my close of market routine.

    I do the same thing, on my tiny 13″ laptop screen every day.

    – Check the $spx first with market internals, 5 min, then 60 min then 30 min then 15 min
    – Check the $spx daily
    – check the es futures day session 5 min chart with $tick
    – Examine all open positions
    – Adjust stops according to my rules. Exit any positions which have been open for 3 days and have not made me at least 1R
    _ Go through the markets in order, currencies euro, dx, jpy, aud, audjpy, cad
    – then metals – gold, silver, copper
    – then 10 year notes and 30 year bonds
    – take a look at $indu and $compq to look for non-confirmations
    – list any potential trades for the day
    – check potential trades for correlation problems, make sure I am not risking more than 2% of account balance if everything goes wrong.

    He just couldnt seem to grasp that trading hasnt got anything to do with picking market direction. Its all about perfect execution, elimination of mistakes, keeping your head right when its all going wrong.

  • volar

    sick! I have been there and done that like its going out of style

  • Anonymous

    Pretcher hasn’t been preaching P3 on the network. So, this drop must be real!

  • volar

    obviously pretcher does not trade… wish i could short his ego

  • http://evilspeculator.com molecool

    What is he saying these days?

  • http://practicalt.blogspot.com/ Gold_Gerb

    The SPX:Gold ratio is really something to keep an eye on this summer.
    remember, the ratio chart throws out the currency aspect.
    http://stockcharts.com/h-sc/ui?s=$SPX:$GOLD&p=W&yr=3&mn=0&dy=0&id=p74537725983
    if the ratio got down to March 2009 levels, would you pick up some equities?
    or would you be looking for more?
    it’s a personal choice.
    -GG

  • bisq

    I would be looking for the ratio to keep grinding lower until its back to the 1970s stock low/gold hi ratio , which my timing cycles see as soon as 2012 but more likely into 2015.  the march low ratio isnt really any significant level in the big picture of things.
    so that’ll be a negative on bottom fishing stocks at least RELATIVE to gold.

  • Anonymous

    Please I’m dying to know! Anyone who subscribes want to email me a copy I’d sure get a laugh out of it 🙂

  • http://www.facebook.com/people/Aaron-J-Butler/560633708 Aaron J Butler

    This looks like a fairly neutral system getting eaten up by commissions to me . . . Everyone wanting to take the inverse is right of course, which is why I think this is just commissions eating you alive.  If I’m right, it’s the broker that’s getting the inverse of this system, by charging you a fee every time you trade, win or lose.

  • http://twitter.com/Scrillhound Scrillhound

     Commish is not included in those stats.  But yes, if you traded the inverse commish would play a major factor in profits.  2k trades x $3.50 per rt and profit from trading against it drops to about net $3.5k.  Which would mean if you’re trading w/ a retail broker commish reps over 50% of profits.  Doesn’t make sense unless you’re scaling up and leasing a seat.

  • http://evilspeculator.com molecool

    Amokta is gone? Got wiped out? Jeeezzz – well, we told him repeatedly. And yes, SC’s pre-flight check list below is very close to my own routine.

  • http://evilspeculator.com molecool

    In case you’re checking in for an update. I am working on the promised and lengthy sentiment post which I am sure you all will enjoy. Need to head to the gym for a few hours but it will be posted later this evening. Please check back here around 10:00pm EDT.

  • raised_by_wolves

    @Gerbil_Gold:disqus @bisq:disqus 

    Nothing is certain (who knows maybe gold will crash while stocks soar), but here’s what I’m thinking is most probable:

    http://content.screencast.com/users/raised_by_wolves/folders/Jing/media/3501b1b3-88d4-4200-a796-113ab5f04ab1/00003425.png

  • http://evilspeculator.com molecool

    Actually – NO – those bubbles are NOT BB bands. The are sub components of the Zero 😉

  • raised_by_wolves

    That reminds me that I need to spend more time on the fire escape, which, you know, makes a great pull up bar.

  • Anonymous

    I don’t know if BDI still means anything, but it’s at its lowest since 2008 crash. 

    http://investmenttools.com/futures/bdi_baltic_dry_index.htm

  • http://evilspeculator.com molecool

    It always means something – just a question of whether or not it’s being ignored.

  • http://www.facebook.com/people/Aaron-J-Butler/560633708 Aaron J Butler

    Wow, not including commissions that is a damn stable trend there.  I do the same thing btw — whenever I find a frustratingly consistent trend of losses I try to figure out how to get on the other side of that trade.  It’s rare to find something as perfectly consistent as this one though. 

  • http://evilspeculator.com molecool

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