Now our contrarian indicators have gone mainstream. Which is why they might not be worth anything soon. link
In fact, the recent sell-off started while ISEE was dropping below 100, normally a sign of put support (and many blogs were calling for a "melt-up"). But the VIX was still at 10. Which means puts were being sold with very little premium, hence complacency. And the buyers of puts were probably mostly stock owners hedging with very cheap options (rightfully so). Investor sentiment was bullish, thus negating the effectiveness of equity pc ratio contrarian readings. These were not for the most part speculative buying, they were hedges from a record percentage ownership of stocks, and little in cash. The true sentiment reading was the nonchalant selling of puts with no premium to speak of while we were rallying to new highs.
We got our rally out off that 52 week low ISEE reading and big jump in the VIX, but investor bull/bear ratio still shows a low level of bearishness. That makes me cautious and not in the mood to jump in on the bull bandwagon quite yet. Remember all those puts last May during opex? They sure fooled me and they could very well fool us this week (how many followed the reckless advice of Bernie Schaeffer a couple of weeks ago, strictly based on pc ratio?). Price is what matters and I am watching NDX resistance at 1761 more than anything right now.
We will get the latest figures tomorrow on investor sentiment and see if there are enough bears out there to call a bottom. I doubt it.
In fact, the recent sell-off started while ISEE was dropping below 100, normally a sign of put support (and many blogs were calling for a "melt-up"). But the VIX was still at 10. Which means puts were being sold with very little premium, hence complacency. And the buyers of puts were probably mostly stock owners hedging with very cheap options (rightfully so). Investor sentiment was bullish, thus negating the effectiveness of equity pc ratio contrarian readings. These were not for the most part speculative buying, they were hedges from a record percentage ownership of stocks, and little in cash. The true sentiment reading was the nonchalant selling of puts with no premium to speak of while we were rallying to new highs.
We got our rally out off that 52 week low ISEE reading and big jump in the VIX, but investor bull/bear ratio still shows a low level of bearishness. That makes me cautious and not in the mood to jump in on the bull bandwagon quite yet. Remember all those puts last May during opex? They sure fooled me and they could very well fool us this week (how many followed the reckless advice of Bernie Schaeffer a couple of weeks ago, strictly based on pc ratio?). Price is what matters and I am watching NDX resistance at 1761 more than anything right now.
We will get the latest figures tomorrow on investor sentiment and see if there are enough bears out there to call a bottom. I doubt it.
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on Tuesday, March 13, 2007 at 3/13/2007 01:27:00 AM.
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