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VIX and stock market sentiment, commodities momentum

Summary:
By Troy January 25, 2021 VIX sentiment VIX remains compressed in the wake of the stock market’s rally since November. Its Daily Sentiment Index’s 3 month average fell to the lowest level since February 2020: Historically, such extreme sentiment usually led to VIX spikes over the next 2-3 months. The one big failure was in 2017, when the stock market rallied relentlessly and volatility remained consistently low: Here’s the same chart, displaying VIX’s Daily Sentiment Index (DSI) below the S&P 500. This was a minor bearish factor for the S&P over the next 3 months: Stock market sentiment The S&P Daily Sentiment Index’s 50 day moving average is rising: Historically, such optimism was a bearish

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VIX sentiment

VIX remains compressed in the wake of the stock market’s rally since November. Its Daily Sentiment Index’s 3 month average fell to the lowest level since February 2020:

VIX and stock market sentiment, commodities momentum

Historically, such extreme sentiment usually led to VIX spikes over the next 2-3 months. The one big failure was in 2017, when the stock market rallied relentlessly and volatility remained consistently low:

VIX and stock market sentiment, commodities momentum

Here’s the same chart, displaying VIX’s Daily Sentiment Index (DSI) below the S&P 500.

VIX and stock market sentiment, commodities momentum

This was a minor bearish factor for the S&P over the next 3 months:

VIX and stock market sentiment, commodities momentum

Stock market sentiment

The S&P Daily Sentiment Index’s 50 day moving average is rising:

VIX and stock market sentiment, commodities momentum

Historically, such optimism was a bearish factor for the S&P over the next month. This indicator has been particularly effective in recent years:

VIX and stock market sentiment, commodities momentum

Commodities momentum

Commodities continue to trend higher relentlessly. Like trends in currencies, once a trend in commodities gets going, it can really get going and blow away all expectations. The CRB Commodities Index’s 14 week RSI is at its highest level in a decade!

VIX and stock market sentiment, commodities momentum

Such strong momentum usually led to more gains for commodities over the next few months:

VIX and stock market sentiment, commodities momentum

Conclusion

  1. Short term trend followers should continue to ride the bull trend because no one knows exactly when it will end.
  2. Medium term traders should go neither long nor short.
  3. Long term investors should be highly defensive right now. This speculative bull market may last another 6 months or even 9 months, but in 2 years time, long term investors will be glad they did not buy today.
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