"You know the day destroys the night
Night divides the day
Tried to run
Tried to hide
Break on through to the other side"
Break On Through- The Doors
For those of you who are regular readers of my commentaries, you know that I have been bearish for quite some time now. A combination of technical resistance and extreme bullish sentiment has caused me to trade calls very cautiously over the last few weeks. Back on March 12, I wrote an article entitled "The VIX Attempts to Break on Through." On that occasion, the CBOE Market Volatility Index (VIX) had moved above 40 on an intraday basis for the first time since October. Later that day, the VIX retreated from its high of 41.16 and failed to close above the 40 level. Since that time, the VIX has dropped over 50 percent on an intraday basis, putting in a low of 20.57 on Friday.
Since bottoming on Friday, the VIX has proceeded to close above its 10-day moving average and its 20-day moving average for the first time since March 12. With a strong move higher on Monday, the index overtook both of these trendlines in one fell swoop. The VIX managed to close above the trendlines again yesterday and has remained above them today, so far. This would appear to be a turning point for the VIX.
When you add the apparent reversal of the VIX with the latest Investors Intelligence numbers, you get a pretty bearish sentiment read in my opinion. In case you missed it, the latest Investors Intelligence poll shows that 56 percent are bullish and a mere 20.9 percent are bearish. It is not so much that the bullish percentage continued to move higher that bothers me, it is the fact that the percent bearish is at its lowest reading since 1992.
When you combine these sentiment indicators with the technical resistance that exists for the S&P 500 and the Dow, I can't help but be bearish for the short-term.
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