"SOIR-ee" for stocks? Sentiment perceptions including more "thinking the unthinkable" about gold, the dollar and bonds

Some of the Monday morning reading I recommend is now available during the weekend - Todd Salamone (Schaeffer's Research Senior Vice President of Research,)and Rocky White (their Senior Quantitative Analyst) with sentiment and quantitative analysis commentary for the upcoming week. And this time, Bernie Schaeffer adds comments of his own about signals from the VIX. In Monday Morning Outlook: Next Challenge for SPX – A Sustained Move Above the January High - Deficit and inflation concerns weigh on traders, Todd examines the potential for a breakout by the S&P 500 Index (SPX), noting its patterning of performance after the start of 2008, as well as comparing prior instances when the SPX was testing its 200-day moving average. He also examines buy-to-open options activity, and the difficulty in reading sentiment when the market may be in a transitional period. Then, Rocky examines the gamma-weighted Schaeffer's put/call open interest ratio (SOIR), the indicator's recent decline, and the potential impact on the SPX. If you read Rocky's portion of the article, you'll understand my little pun with the French "soiree" (evening party).

Bernie Schaeffer weighs in with Signals from the VIX - Citigroup analysts see risk as gauge records an uptick. He's commenting on a report that Citigroup's Tom Fitzpatrick and Shyam Devani have noted the recent divergence in VIX (that I've commented on here of course), and adding that they're concerned about a "disconnect between what's happening on implied volatility and underlying price action across a host of markets" (citing Bloomberg.com - "VIX, Currency Options Signal Rally May End: Technical Analysis" – 6/4/09). Bernie comments that a good indicator to track is the volatility skew on VIX options themselves, saying that when VIX puts become relatively more expensive then VIX is likely to move down. Then when VIX calls become relatively more expensive, the VIX is more likely to move up.

For what it may be worth, it's quite interesting that such a disconnect was forecast by Raymond Merriman in his public weekly commentaries (which we quote here, and always available at his MMA website listed at right).

Todd's analysis cited above also extends to some interesting comments not just about Treasuries, but now also on the dollar, and even gold. He even makes a suggestion how to play that involving the Australian Dollar Index (AUX), which tracks the Australian dollar to the U.S. dollar. I've gotta admit, I enjoy seeing his comments synching up with what I've been seeing shape up in these sectors (which you can find in my prior posts using the applicable labels, in the labels list at right). To many it seems obvious that the dollar is tanking, along with bonds, and that gold is about to soar. While that might be the case, I'm "thinking the unthinkable" that there are signals saying these markets may turn and surprise a lot of people. So I'm glad that Todd is seeing similar signals too.