Sentiment Is Extreme

There are three areas that I look at to gauge sentiment and all three are singing the same tune.
  • Survey Says- All sentiment surveys are pointing to a bullish sentiment extreme. My favorite survey for intermediate term sentiment is the Investors Intelligence survey. The number of bulls are at a new high for the bull market and the bears are at 21%. I prefer it when the bears are under 20% but this is close enough.
  • Rydex- Rydex traders are positioned about as bullishly as they get.
  • Put/Call Ratios- The two put/call ratios that have worked best in the past year have fired off sell signals.
 Were this not the time of the year when sentiment can get to an extreme and stay at an extreme I would be aggressively short. As it stands I am tightly hedged. The timing of a correction is tricky because we will not be maximum overbought until the end of the day on Monday. Than we are bumping up against option expiration, which often serves to extend  a rally. Than we are bumping up against Santa Claus rally time. Even so, if there were a gun to my head and I had to be long or short for the next two weeks, I would be short.

3 comments:

Anonymous said...

how do you hedge your portfolio, with spy puts or alpha shorts?

thanks

Tsachy Mishal said...

Im long in the money SPY Puts because vol is so cheap.

Anonymous said...

thanks