Sentiment Levels OBSCENE: Caution
Courtesy of Karl Denninger of The Market Ticker
I know, I know, the market only goes one way.
Those numbers have never been seen before in my recollection – and as far as I can tell (by looking back at the stats), never by anyone else either. In fact that opening print is more than double the previous all-time high.
These are retail CALL buyers folks – not institutions.
Then there’s the CBOE $CPCE index (same deal but including institutional buyers) which reached an 0.32 level yesterday – a record going back to at least 1997.
Again, these are monstrous contrary indicators – they show that "retail" is not only fully involved in betting on "higher prices" in the stock market but is positively giddy and bubbly about the stock market.
Is this a guarantee that things are about to get bad? There are no guarantees.
But that, coupled with the VIX SELL signal that we got two days ago (a rare indicator that I covered in my nightly technical video) if you’re not being cautious here you’re asking for it.
Here are the two most-recent VIX SELL indicators (that is, go long volatility, and short the market):
The January signal was followed by a ~8% selloff.
And here are the three previous indications of the same signal:
May ’08 Options expiration was a local top that led to a nasty decline. So was the end of February of 2008, and so was the end of the year in 2007.
There was one failure in the last several years – on 10/13/06 we got a signal but that did not lead to a material decline.
But on 10/13/06 we did not have the sort of giddiness in the other sentiment indicators – this time we do and at present those indicators are at levels that exceed what we saw during the parabolic blow-off in 1999 and 2000.
This latest "recovery" from the January sell-off has every characteristic of a parabolic blow-off. These can go further than you would ever imagine, but be warned – with sentiment where it is now, along with the utter lack of anything approaching fundamental support for these valuations, it will take only one little "triggering" event, much as it did in March 2000, for the run to the exits to occur.
Oh, and lest you think the "Wise Guys" don’t see it, have a look at the /ZN today, which has gone vertical the last few hours. That’s big boys selling into this strength and buying the Treasury curve.
