Golden 5: Sentiment

Let's turn to sentiment and wonder how much juice is left in the current rally.



The blue line shows the S&P500 and the pink one my proprietary VIX OSC indicator.



VIX OSC calculates the trend adj. delta btw. the SPX and a synthetic SPX proxy based on the VIX.



The simple idea behind this is the notion that the optionmarket leads the cash markets and the OSC tries to capture this leadership.



Step 1-Observations

• the current OB (overbought) reading is in the top3 of the last 14yrs (ignore scale), ie we are experiencing an extreme


• the ascent (2. derivative) of the pink line ("from down to up") is the steepest of in the entire series


• the primary move in the OSC is one of the largest


• it seems to have peaked


• extremes to the downside (PANIKS!) result in even more extreme oscilations

Possible Interpretation:

1. Unless it is different this time we should see limited upside potentail for the market


2. A new precedent would be set with an upside break out, i.e. we'd be in uncharted territory and anything could happen there....


3. The risk is clearly that we are in a topping pattern which could trigger an avalanche on the downside given the monster move on the way up