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VIX sentiment
VIX remains compressed in the wake of the stock market’s rally since November. Its Daily Sentiment Index’s 3 month average fell to the lowest level since February 2020:
Historically, such extreme sentiment usually led to VIX spikes over the next 2-3 months. The one big failure was in 2017, when the stock market rallied relentlessly and volatility remained consistently low:
Here’s the same chart, displaying VIX’s Daily Sentiment Index (DSI) below the S&P 500.
This was a minor bearish factor for the S&P over the next 3 months:
Stock market sentiment
The S&P Daily Sentiment Index’s 50 day moving average is rising:
Historically, such optimism was a bearish factor for the S&P over the next month. This indicator has been particularly effective in recent years:
Commodities momentum
Commodities continue to trend higher relentlessly. Like trends in currencies, once a trend in commodities gets going, it can really get going and blow away all expectations. The CRB Commodities Index’s 14 week RSI is at its highest level in a decade!
Such strong momentum usually led to more gains for commodities over the next few months:
Conclusion
- Short term trend followers should continue to ride the bull trend because no one knows exactly when it will end.
- Medium term traders should go neither long nor short.
- Long term investors should be highly defensive right now. This speculative bull market may last another 6 months or even 9 months, but in 2 years time, long term investors will be glad they did not buy today.