Sentiment Thoughts

Good morning rats.

I should have more to come this week, but have much on my plate. I cut my finger this am, so ignore typing errors.

Here are a few charts I am watching FWIW.

Lets start off with breadth. All of my indicators other than ADV-DEC issues suggest we could have a decent flush. All that being said, it is a matter of when and where the dip buyers show up.

Here is the ADV-DEC NYSE Volume.

Clearly we can have a decent flush with this going on.

Here is a shorter-term view of that.
[amprotect=nonmember] More of Volar’s charts and commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
[/amprotect] [amprotect=1,9,5,2]

Ouch. The market is breaking down, and this is very LT bearish.

Now on to sentiment.

Here is the daily Hulbert sentiment index.

That clearly shows people are getting bearish, but are they bearish enough for a bottom? Maybe. I only say maybe because I built a rate of change index for the HFDSI.

Here is a rate of change index.

This shows we are nearing a buy zone. Moreover, this shows that the crowd is STARTING to get bearish on more than one survey. Sentiment is generally a titch early. I am still waiting for panic selling.

Here is the ISEE equity and bollingers.

This just goes to show that we could have more selling. I would like to see this a bit lower. Again still waiting on panic selling.

Here is the VIX/VXV ratio. This just goes to show that the market has not panicked yet.

Still no panic. Patience here is likely prudent. Almost every dip for the past few years, this ratio has been lower.

Also, I would like to show you another sentiment index I follow. This is a monthly index, but it is something to keep in mind. This is the RYDEX Advisor Confidence Index, a survey of RIAs.

We wont get new data for another 3 weeks. I am sure you are wondering why I am showing you this… well I am showing you this to show you how bullish people were. Obviously we had other extremes (ISEE, OCC, AAII, II, etc), but this is just another confirmation.

As for seasonality, I have a few items.

First, the CBOE equity Calls/Puts. Mole showed you this chart on Sunday, but I am giving you an update.

This just shows that many similar years (in bull markets) the market had some call buying support here in the near term.

Here is the same data, but the MoM change.

I have highlighted different seasonal routs. We have taken one fork, and that fork tends to lead to a little rally here. I think my comments on this chart jive with many of the longer-term sentiment indicators as well.

Ok now I am going to give you 2 confusing charts. Mole was wondering if the VIX is more correlated to the SPX on a seasonal basis; he is absolutely correct.

The key is that a 100% correlation is a perfect negative correlation. 0% to 60% implies a weak negative correlation. So a lower or more negative number means a higher correlation. These charts show that the correlation has increased over the years, but it is still seasonal. Or the VIX is not extremely correlated to the SPX during early summer. Notice the market has panicked (a little bit), but the VIX has not rallied… market makers likely understand this.

And Per Mole’s request. Here is a chart that shows when the VIX has more than normal correlation to the VIX.

This tells me that the boys sell premium this time of year, and they dont in September. I could be wrong, that is a guess from this data.

Finally, I leave you with the OCC net calls- puts chart with seasonal colors.

This just goes to show you that we are doing the seasonal flush. Over the next couple of weeks we may enter an area that says some money flow has slowed enough for a short-term swing long trade.

Bottom line: from a LT standpoint things are still bearish, and a bounce may be due, but I would be very patient. I truly thought last Friday on the bearish jobs report some morons were going to load up on puts and/or sell some stock; however, that did not happen, which still suggests that one should wait for some more panic selling. I fell like I have been saying the same thing for about a month, but it has kept me safe so far. I will inform all of you when something probable pops up.

Good luck trading,

-Volar
[/amprotect]