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Bob Palmerton
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Mr. Palmerton has over 25 years experience in Corporate Finance, holding positions as CFO, Director of Finance, Financial Management and Analysis roles for Fortune 500 and multi-national firms (ADP, Honeywell, BOC Group) as well as early-stage growth companies. Mr. Palmerton has raised equity... More
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Baseline Analytics
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Baseline Analytics
  • Sentiment Extreme - Impending Trend Change? 0 comments
    Dec 26, 2013 11:41 AM | about stocks: SPY, DIA, VXX

    Previously we have noted that extreme readings in VIX and the Put/Call Ratio have coincided with shifts in the market trend. These trend shifts can launch modest, short-term pullbacks or much-needed corrective action.

    The chart below is an update from a past posting that highlighted highs and lows in VIX and the CBOE Put/Call Ratio, comparing those extreme readings with the stair-step advance of the S&P 500 and its short-term peaks and troughs.

    (click to enlarge)

    You will notice that when both VIX and Put/Call were at extremes, and the S&P 500 was at a peak or trough, there is a dotted line connecting the encircled peaks and troughs. This simple, visual depiction of market sentiment has been a useful tool to assess the risk of a change in the current trend, and a component of our TrendFlex scoring system.

    Today, we have denoted a "question mark" on the chart above, highlighting that these readings appear to have reached an extreme. Both Put/Call ratio (at the bottom of the chart) and VIX are at complacent levels (a contrary indicator to the market trend: low complacency at high market price levels have in the past preceded a change in the market trend).

    Whether a trend change occurs now or in the near future, our assessment is that there is increased risk of a trend change, and prudent money management to protect capital is in order.

    - Baseline Analytics

    Stocks: SPY, DIA, VXX
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