Investing Is Not A Science

Everybody seems to be fixated on the fact that the VIX has not spiked. I cannot recall ever hearing so much chatter about the subject. I would prefer it if the VIX spiked but it is not necessary for that to happen in order for us to see a bottom.

I have rarely seen a bottom where every indicator was pointing to a bottom. At most good bottoms the majority of indicators are pointing to a bottom. However, one can usually find some indicators that are not at an extreme. The stock market is not a precise science and one must weigh the evidence.

Aside from the VIX there are some other indicators that are not lining up for a bottom. The Investors Intelligence bears are still very low, even though the bulls have pulled back significantly. At Rydex we see a similar situation where the number of bullish bets has shrunk but the bearish bets have not picked up.

The list of indicators pointing to some sort of a bottom is significantly larger than those not pointing to a bottom:

  • The market will be maximum oversold by the close of trading on Tuesday.

  • The market will be oversold on an intermediate term basis at the close today.

  • The put/call ratios are showing extreme bearishness.

  • The AAII survey is at an extreme consistent with bottoms.

  • Hulbert sentiment is at a similar extreme.

  • We are seeing TICK readings consistent with bottoms.

There are plenty of indicators pointing to a bottom but the fact that everybody is fixated on the one that is not is telling. I would be more concerned if everybody was focused on the bullish indicators. I expect to see a turn by the middle of this week.




No comments: