Sentiment "6 ways" on equities markets show contrarians should be cautious about continued upside potential

The "typical" window dressing expected for the end of quarter, end of June time period - that would also be consistent with the more immediately bullish scenarios I discussed in my prior post here - may be too widely expected this time around, at least from a contrarian standpoint. Let's look at six sentiment measures. At left is the gauge from SentimenTrader, showing investors got happy again with their short-term views even notching more bullish (i.e. for contrarians, bearish) than their intermediate-to-longer-term views. What about "max pain"? Well, it's a bit early to check on that, but just as information the July "max pain" is currently showing as 91 for SPY and 36 for QQQQ, according to the Option Pain CBOE (Max-Pain) Calculator from OptionPain.com. If you go there to actually look at those graphs, they're already rather "v" shaped, and interestingly the "call wall" (as I like to call it) is already very high especially for the QQQQ (thinking it's going above $50 or $60 by July 17?! - hmmmm!).

As of Tuesday, June 23, looks like the commercial traders were thinking otherwise for both the ES (S&P mini/futures) and the Nasdaq 100 (QQQQ) according to the COT (Commitments of Traders):


Below are views of the ISE (the ISEE charts and data) showing the All Equities, and the All Indices and ETFs. The All Indices and ETFs which I've noticed has spiked high at significant market low points, has trended down yet more recently - so I'm wondering if this indicates the markets are due for a stumble. The All Equities shows that after the recent scare we pointed out here (after which equities rebounded nicely), complacency has returned as this measure returned to 160 at the close Friday.

(By the way, contrarian traders might want to know that among the three "Top Bullish" marked by the ISE Friday, is Ford (F) with calls numbering 4,920, far outweighing puts at 180. The others were WYE with 9,181 calls to 116 puts, and MU with 13,169 calls to 313 puts.)

The CPCE after spiking above its 200 day moving average, returned to the territory of that coiling wedge I'd referred to, but looks like it's finding support at its 50 day moving average. With the shorter-term moving averages converging back toward the 200 dma after their "bow tie" in March, we can think either they stay converged for a while, or perhaps exhibit a new "bow tie" and move higher along with the CPCE for a while. It's interesting there's positive divergence with the indicators since April. So the CPCE looks similar in the sense that it was running for a while with sentiment looking bullishly complacent as the VIX also dropped, but it's already moving up (and its Bollinger Bands look like they are on board with the idea of a movement higher too).


What about the VIX, then? Here are my daily and weekly charts along with the trendlines already carried on them for a while, and a few notes I've marked for today. The longer the VIX has remained under the 33.81 Fibonacci retracement that it achieved with the Armstrong date in mid-April, and moving down along my downtrend channel line, the more it's been looking like it wants to tag the next lower major Fibonacci level at 24.78 (a .786 retracement to its February 2007 lows). It got amazingly close to that level yesterday. Why not finish that task on Monday and then rebound up to give me a new, uptrending channel line? Can I be that lucky?

My weekly VIX chart at bottom is consistent with this idea too. Notice as I marked on it, that the indicators on the weekly have remained very soft and haven't crossed up, while the daily indicators rolled over again the past couple of days. Just as I was ready to get bearish equities once I saw VIX tag 33.81 - but then had to change my tune as the VIX didn't want to rebound from that - I'm going to get bearish again if and when I see the VIX tag 24.78.