Market DataâPast 7 Days | |||||||
| Friday | Thursday | Wednesday | Tuesday | Monday | Friday | Thursday |
DJ Industrial | 12,114.10 | 12,234.34 | 12,268.63 | 12,216.24 | 12,632.26 | 12,647.48 | 12,686.02 |
Total Volume (000s) | 1,818,000 | 2,220,000 | 2,193,000 | 2,329,000 | 1,554,000 | 1,448,000 | 1,468,000 |
NYSE Up Volume | 223,000 | 765,000 | 1,381,000 | 23,000 | 774,000 | 593,000 | 656,000 |
NYSE Down Vol. | 1,587,000 | 1,427,000 | 753,000 | 2,304,000 | 753,000 | 832,000 | 780,000 |
NYSE Advancing | 803 | 1,309 | 2,099 | 458 | 1,649 | 1,602 | 1,534 |
NYSE Declining | 2,514 | 1,992 | 1,245 | 2,921 | 1,658 | 1,711 | 1,736 |
NYSE New Highs | 60 | 67 | 69 | 80 | 286 | 209 | 322 |
NYSE New Lows | 55 | 52 | 26 | 54 | 16 | 19 | 7 |
Nasdaq | 2,368.00 | 2,404.21 | 2,416.15 | 2,407.86 | 2,504.52 | 2,515.10 | 2,524.94 |
Total Volume (000s) | 2,441,000 | 2,674,000 | 2,567,000 | 3,004,000 | 1,858,000 | 1,999,000 | 1,994,000 |
Naz. Up Volume | 420,000 | 698,000 | 1,582,000 | 120,000 | 749,000 | 683,000 | 1,233,000 |
Naz. Down Vol. | 2,004,000 | 1,902,000 | 884,000 | 2,872,000 | 1,020,000 | 1,236,000 | 733,000 |
Naz. Advancing | 753 | 1,046 | 1,657 | 279 | 1,217 | 1,311 | 1,645 |
Naz. Declining | 2,264 | 1,996 | 1,390 | 2,824 | 1,793 | 1,703 | 1,338 |
Nasdaq New Highs | 35 | 35 | 31 | 29 | 141 | 140 | 178 |
Nasdaq New Lows | 87 | 94 | 69 | 80 | 23 | 19 | 12 |
Last week, we noted a "shift in sentiment seen in other financial markets" including gold and bonds and concluded that "it does have the potential of spilling over into equities," which might "lead to some selling in the stock marketâas nervous investors look to the safety of other investments and cash." That is precisely what happened on Tuesday, as fear infected the stock market and sent the major averages reeling for their biggest one-day of losses since September 2001. Sentiment IndicatorsâPast 7 Days OPTIONS Friday Thursday Wednesday Tuesday Monday Friday Thursday Puts NA 2,937,424 2,414,007 4,298,647 1,409,233 1,702,372 1,585,551 Calls NA 2,070,158 2,233,512 2,522,329 1,382,580 1,193,337 1,535,099 Index Puts NA 1,958,883 1,511,497 3,016,629 630,985 1,012,744 869,520 Index Calls NA 850,794 999,201 1,060,648 324,016 261,554 446,873 Index P/C Ratio NA 2.30 1.51 2.84 1.95 3.87 1.95 Total P/C Ratio NA 1.42 1.08 1.70 1.02 1.43 1.03 VIX 18.61 15.82 15.42 18.31 11.15 10.58 10.18 VXN 23.66 21.51 20.53 22.97 15.98 15.32 15.30 TICK +285 +880 +879 -479 +101 +416 +735 TRIN 2.27 1.19 .94 14.70 .97 1.32 1.02 CBOE PVI NA 1.43 1.23 2.29 .87 1.04 1.00 ISEE 91 107 114 96 101 111 116
Tuesday's selling triggered more selling and at the end of the day, many of the sentiment indicators had been driven to extremes. The CBOE Volatility Index ($VIX), for example, surged 58% on Tuesday and to its biggest one-day percentage gain ever. At the same time, the Trader's Index also rose to record highs of 14.7, as down volume outpaced up volume on the NYSE by a margin of almost 100-to-1! Meanwhile, volume in the options market exploded, as nervous investors in search of portfolio protection pushed put volume to records of more than 10 million contracts.
Now, it might be tempting to think that, considering the extreme readings from a variety of indicators, the stock market has become completely washed out during the latest market decline. Indeed, the really loud guy on TV with the bad hair seems to think so. The assumption is that investors have overreacted or panicked, driven prices down too far, and rationality will eventually prevail. If so, stocks will quickly rebound and resume their winning ways.
There a few problems with the V-shaped bottom hypothesis, however. For one, stocks are still falling. While the Dow was able to rebound modestly on Wednesday and recover from a 200+ point deficit Thursday morning, an afternoon sell-off on Friday pushed the average below Tuesday's lows. On Friday, the industrials fell 120 points on the session and, at 12,141, finished below panic sell-off low of 12,216.
More importantly, while a variety of sentiment indicators did reach an extreme Tuesday, the signs of extreme bearishness come after a prolonged period of rising stock prices and increasing levels of bullishness. Indeed, from a contrary view of the markets, the high levels of bullishness helped set the table the latest decline.
We discussed these indicators in detail in previous installments of Sentiment Journal in 2007. For example, on February 16, it was noted here that high levels of call volume and low readings from the VIX suggested that, "a lot of investors are already on the bull bandwagon. That, in turn poses a risk to bullish trades." On February 9, it was assumed that the "high level of bullishness that developed since the summer of 2006 are a negative for the stock market because it hints at overbought conditions." And, a little more than one month ago, (in SENTIMENT JOURNAL: The Hidden Risk from the Fund World, January 19), it was mentioned that record high levels of margin debt along with the proliferation of ETFs, mutual funds, and hedge funds set the table for an explosive situation. "The risks of a substantial spike in volatility cannot be underestimated. In fact, it is probably not a question of if, but when."
Tuesday was the day of reckoning. Now, the bullish sentiment is being unwound in dramatic fashion. However, while many of the sentiment indicators have already reached extremes, it is probably too early to conclude that all of that bullish sentiment has been sufficiently purged from the stock market to set the table for the next advance. If history is a guide, it is a process that could take several weeks or months.
(03/02)
(03/01)
(02/28)
(02/27)
(02/26)
(02/23)
(02/22)
+2.79
+.40
-2.89
+7.16
+.57
+.40
-.02
+2.15
+.98
-2.44
+6.99
+.66
+.02
-.08
Frederic Ruffy
Senior Writer & Index Strategist
Optionetics.com ~ Your Options Education Site
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