Simpler Sentiment – Weekly Wrap-Up 11/18/16

The S&P 500 was flirting with new record high levels this morning before giving up a little bit of ground, though there is still time before the close. The Russell 2000 is well into that record territory, now on an 11-day winning streak.

The run up from the election continues to be very impressive and a bit perplexing, especially given the prognosticating before the election about a Trump win and the acrimony since.

Volatility had been out of synch with the equity gains as it held some premium, especially on the longer end. But now the VIX is back down to 14, off more than 40 percent from two weeks ago. The VXST, the 9 day Volatility Index, is down… wait… all the way to 8.78, near the all-time record low. That is a 70 percent drop from the highs of the November 4. This extremely low reading will not last and suggest to me that everyone has unwound their hedges. It brings to mind Warren Buffett’s saying, “be fearful when others are greedy”. Now may be the time to be afraid…

Chris would agree with that sentiment, “I think the huge increase in bullish sentiment in the AAII poll means that every rally has to be sold”.

But many of our other traders are still bullish.

Carolyn is still looking up but wary of the bumps along the way. “In the bigger picture I still have higher targets in the SPX at the 2223 area……Within the bigger picture however there is room for corrective pullbacks in this process.”

Tucker thinks the SPX will continue to climb. “Yesterday it broke and closed above the Voodoo Tree Line of 2182. If it can now close above the recent highs back in August we should see the trend continue up.”

John isn’t fighting the trend either. “System activity has certainly favored the long side on the indices this week – and I see no reason for that to change in the near future.” He looks beyond the equity indexes though. “Grains however are mostly listless and sideways following the end of the growing season and in all probability, will drift sideways to lower for the next week. Seasonals are usually bullish into the end of the year following the Thanksgiving holiday. This should be the case this year reflecting strong export demand that continues to improve.”

David too isn’t fighting the tape. “Wave patterns have been telling us to expect this advance in the S&P 500 and now that it’s here, they also tell us that it’s likely not over. The overall message is to not fight the uptrend, but it is always safer to buy pullbacks whether they occur now or later.”

Next week will be a short one with likely lower volume. Ironically that can lead to lower, or much higher volatility. Given the analysis, I wouldn’t be surprised with the latter this time around.

Interesting links from the week:

Michael Lewis on the founders of behavioral psychology Kahneman and Tversky. (http://www.vanityfair.com/news/2016/11/decision-science-daniel-kahneman-amos-tversky)

Some popular leveraged Oil ETFs are getting delisted.


Volatility falls most ever. (with nice graph)


Don’t be a pessimist – it’s bad for you heart


Chris McKhann

Chris McKhann

Chris McKhann has been involved professionally with the stock market for more than 15 years and specifically with derivatives for 12 of those. He started as a stock broker, but quickly moved on to options and futures trading. He spent some time as the Derivatives Product Manager for TD Ameritrade. He was the chief analyst and hedging strategist for OptionMonster. He has been an options trading educator and content provider for many years. His writing and analysis has been featured on Reuters, the Wall Street Journal, Forbes, TheStreet, CNBC and internationally. He has also designed and traded option and futures strategies for prop trading firms and hedge funds as well as managed accounts.

Leave a Comment