Picture this: which "Spaghetti [CPCE]" will win the sentiment contest?

Charting sentiment is one way to get a bead on where the market will go, since overly bullish sentiment means most have already bought and there's little buying power to take the market higher (the reverse being true at lows). With a nod to one of my least favorite TV commecials (that obnoxious "Spaghetti Jimmy" CapitalOne ad (making them "disappear" by hitting violently with a ball)), which picture of sentiment will "win", i.e., does it look bullish or bearish? Looks like there's a "golden ratio" (Fibonacci) majority feeling positive, according to the informal CNN survey this morning (graphic upper right). One of my trading buddies sent along a chart (the first one below) of the equity put/call ratio chart (CPCE), with the comment that its 20-day exponential moving average (dema) looks similar to where it was back in July, 2007. You can see that 20 dema in blue on his chart (below). If this is the right way to see it, and you remember what happened after July, 2007 - well, you might think the ball's going to hit the bull case hard soon.

This inspired me to run some additional charts of the weekly and monthly CPCE and volatility index (VIX), including key moving averages and Bollinger Bands. To my eye, those indicate that we are moving to a potential extreme position, but not yet seeing a turning point. Meantime, the COTS Timer blogspot (analyzing weekly trade setups based on Commitments of Traders sentiment analysis) has this weekend's article titled "Smart Money and Dumb Both Fading Rally" indicating what we already know - there's a lot of perplexion about this rally once it extended faster and farther than "expected". Now, I'm not sure just which COT data they look at - I've been taught to look more at the ES COT data, which I posted yesterday at my UBTNB3 blogspot (as you can see from the "feed" at right), which shows that the ES commercials went pretty much flat the past couple of weeks but then re-initiated slightly into the net short position last week.

When you look at the additional weekly and monthly charts (below) of the CPCE and the volatility index (VIX), you might agree that these sentiment indicators are approaching key levels that could push the markets into a turn down. I'm thinking in particular of the Bollinger Bands, and the moving averages on these weekly and monthly charts.

What about max pain, going into opex? I've posted about the max pain data at my UBTNB3 blogspot, and yes, that would tend to argue in favor of the market pulling back to approximately 800 in the SPX over the coming days. However, the ChartsEdge forecast points otherwise; and we do know that the market doesn't always "obey" the max pain level. So it's a data point, but not enough to pinpoint a turn.

For myself - I already posted the McClellan Oscillator technical breadth data in my prior post here this morning, and looking at the sentiment data I can agree that it's also showing the rally is likely to fade off, with a turn to show up right in this Armstrong "Economic Confidence Model" intermediate high time window. Isn't it a wonderful thing? Leaving the next question the same as we discussed in the prior post ... and referenced in Merriman's weekly preview comment about sentiment extremes ... whether a pullback is orderly, or whether we see something more eye-opening like what happened in the weeks following July 2007! Personally, I'm doing my best to be ready for either scenario!