A Review of Sentiment Indicators – 9/16/22

A through analysis of any market requires the examination of all four market dimensions, price, time, sentiment and momentum.  The weight of evidence could help determine a markets probable course.  Each dimension has various factors to be weighed.  This blog focus is on the sentiment dimension.

The daily S&P 500 (SPX) chart courtesy of Trading View illustrates sentiment readings  from Market Vane Inc.

This chart updates data illustrated in the 09/07/22 blog ”Excessive Bearish Sentiment”

The Market Vane Corporation polls  Futures traders from various  markets.  The polling data derives a Bullish Consensus reading.  High percentage reading  come near market tops, low readings  near bottoms.  Divergent readings  can also  signal potential turns. 

The reading near the crash bottom in March 2020  was 28%.  In November 2021 the reading was  68%. 

The most recent reading  has  risen slightly yet is  still relatively very low and diverging off of the reading  just before the SPX 06/17/22 bottom. Normally  a higher market bottom should correspond with a higher Market Vane reading. The best use of the Bullish Consensus is  as a contrary indicator.   The divergence  implies  excessive  bearishness and could be prelude to a large rally. 

The next chart compares  the SPX with the Volatility Index (VIX).

VIX spikes are effective in  identifying intermediate and short – term degree SPX bottoms.  Occasionally  there can be divergent signals  such as in May and June of 2022.

Note however, that the current VIX reading is  not near the high levels  associated with SPX bottoms. This  implies  the VIX could be in the process of trending higher with corresponding lower SPX prices.   

The next chart compares the SPX with the Put/Call ratio (PC).

“Investor’s Business Daily” uses  PC readings above 1.15 as an indication of a potential stock market bottom. Prior to 09/16/22 there have been five readings  that were close to or at short-term SPX bottoms.  Also note the PC  can sometimes have divergent readings.  Its also possible to discover short-term bottoms with PC readings  below  1.15.  Note the lavender down arrows .

The PC reading on 09/16/22 was the highest in over a year reaching  1.398  just before the SPX bottom on 09/16/22.  This is another sign of excessive bearishness.  You don’t want to be in a crowed  trade.  Currently for US stocks, the crowd is  on the bear side.

This  is  the evidence from the sentiment indicators.

Market Vane reading – excessively bearish, contrarily bullish.

Put/Call ratio reading – excessively bearish , contrarily bullish.

VIX could trend higher, contrarily bearish.

The weight of evidence is  bullish.

The next blog will review momentum indicators.  

Published by Mark Rivest

Independent investment advisor, trader, and writer. Articles have appeared on Technical Analysis of Stocks and Commodities , Traders.com Advantage, Futuresmag.com, and Finance Magnates.

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