This is Volar with a sentiment update. This may be “longish” but I think it is worth your time. Please pardon some grammatical errors- busy here.
ZERO emotion right now – keep your wits – ONLY rely on data. Do not get caught into an emotional trap. There is a time and a place to plunge, and it is not when retail is buying 14MM puts. If you are listening to the NEWS and chasing this down…. this tape will chop your account to pieces.
Logically, why traders listen to news to figure out why a market moved is beyond my mental scope. Do you think anyone in the news business – including CNBC guests touts – knows anything about the markets? Let alone why the tape moved? Media/news does two things: (a) make money by feeding useless emotion based information to suckers, because that is what sells and (b) give weak minded traders a reason to make poor emotional decisions.
I came from a quant finance background, and have built thousands of conditional equations… If you have not studied logic and reasoning – do so (LSAT, N.Taleb – great start). For details look up the narrative fallacy, post hoc ergo propter hoc, undistributed middle term, and induction fallacies.
*Two most common fallacies for trading: (a) Judging decisions by outcomes; (b) News Matters.
Ok – moving on to some investor sentiment data.
Even though I came from a “quant” and “fundamental” background, I only trade on sentiment and the tape.
Put volume does not increase on down days because people are rational- it increases because traders are emotional and irrational. The more emotion/panic I see… I shut my door, turn of my phone, put on my earphones, jam out, and proceed to take panicking traders money.
So on to the charts. Sentiment is dynamic, and it should be looked at in more than one way. E.g.) The absolute level; the change; seasonality; and divergence.
Ok lets start with seasonality.
Notice that this is price vs. its 200 SMA. So this is not a seasonal index, this is a seasonal momentum analog. I don’t like seasonal indexes for a long-winded statistical reason.To me, I see limited downside as the 200 SMA is at 1182 and the low on that chart (’97) equates on a close basis of 1205. So a bear’s best case for the next 40 trading days is 50 Emini points; the best upside is ’71, which equates to 1430. This is theory, but its better than coin tossing.
My point is that the kill shot of bull market years, according to this analog, would be summer or fall. And the math is bullish – not bearish.
Ok more seasonality, but this time sentiment. This is CBOE Equity CALLS/PUTS *100.
Notice that the same years align and the upcoming seasonal support.
Now lets look at my volume and time adjusted CBOE equity Put/Call data
So you see why i am hesitant to say plunge short here… everybody apparently has loaded up on puts AFTER the first two down days. Of course that is rational…
Now lets look at more put volume data. This is all exchanges OCC Equity Calls/Puts.
So you see, put buying is very extreme, “and we are in a bull market you know”.
Here is the change in that prior metric.
I refuse to just get emotional here… this correction has been anticipated and PANIC is not the time to get Cute on the short side.
Here is the amount of OCC total Equity PUTS.
Hmmmmm more puts than LEH… and LEH was in a BEAR market. Just shy of the flash crash and the 4 days following the flash… the DOW was down 1000 points. PANIC like this generally means the damage is done. I will just say that this is partly seasonal, but I had to show you the ~14MM puts to put things in perspective (pun intended).
OK now to a more sentiment related C/P ratio- the ISEE. Intraday I saw a 19 print in a 20min over 20min- right when she bottomed and I saw the -1441 $TICK. Remember the ISEE is a buy to open count- not the raw volume data like the CBOE or OCC total. If you want the 20/20min data- I can give you the excel macro VBA code – very simple.
Ok same thing over and over… we are nearing BUY Zones not SELL zones. Now look at the rate of change.. really? I am not going to plunge here.
So one of my 85 potential buy signals here… now onto the VIX.
When people panic the VIX spikes, but I personally like to compare it to other VOL measures, such as the $VXV for long-winded reasons. The VXV is the 3M VIX. This is (a) partly seasonal and (b) a great sentiment indicator.
So once again, Panic is amok. I refuse to panic.
Now onto sentiment surveys- these are delayed just a bit so take with a grain of salt.
Here is the raw index with Bollinger bands:
It is clearly a buy if we are in a bull market- especially if you consider that this data is delayed.
Here is the change in that index- which helps to time intermediate waves:
So like all the rest of the signals… hard to get in the mood to plunge short.
Now real fast…SP double bollinger
Now do any of these charts UNBIASEDLY say PLUNGE SHORT HERE??? I would say “no.” Yet, I may trade short in dips and dabs as we form the bottoming process, but I am not plunging short here. From surveys to put volume to seasonality, I cant objectively say this is NOT the time to plunge short. Jesse Livermore said, ‘cover short on panic days’ – I agree. Moreover, tops take time; consequently, I will wait for a setup that favors my odds of plunging this market. Also I will add that if I get the signal, I will go very long- not because I think the price is worth what it is worth, but because my data says too… Always follow your system- NEVER emotion or news.
Here a few of my daily plunge rules.
– Never ague with the tape or ask for reasons or explanations.
– Do not insist that the tape agree with you; the market is always bigger than your ego
– No news, ego, bias, or emotion
– 40% is beating the market’s psychology and 60% your own.
No bias or emotion, just coin.
PS .. No pride here-I love critique as it helps reduce my bias