Options Trading

How to Manage Extreme Market Sentiment

Market sentiment is excessive proper now, which has many analysts asking when the rally will finish. Your intuition could also be to hit the exit earlier than everybody else does. With a lot bullishness ingrained within the markets lately, that’s fairly the contrarian stance.

Before you begin taking trades down left and proper, take a look at the information for clues on the way to proceed. Yes, this rally has been a protracted one – however we’re not market timers. The charts and technicals will inform you if it’s “safe” to be lengthy or if it’s time to step again.

Why market sentiment is at excessive readings

The markets have been on fireplace for a couple of months with no main correction. Since early October, the 20 day transferring common on the day by day chart has served as a forceful defend. The SPX 500 solely closed under that line as soon as after it stuffed a niche greater on October 11. That is spectacular.

As I mentioned above, the bulls are clearly in management right here. A 12% run greater in simply three months is kind of the blistering (and unsustainable) tempo. When does the music cease? Current breadth figures are excellent, and new highs are crushing new lows (see the chart above).

So the place is the acute market sentiment coming from? The VIX (volatility index). It has remained moderately calm, an indication of excessive complacency. In reality, it has not closed above 16 through the previous three months.

Meanwhile, cash flows into shares have been very sturdy and the put/name ratio displays unusually sturdy demand for name shopping for. No surprise we’re at new highs!

The wall of fear is up excessive, and it could drag essentially the most bearish of buyers into the fray. At that time, we is likely to be headed for a flip decrease – however let’s watch for the market indicators first. We should not there but.


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