x
Breaking News
0

Once This Correction Runs Its Course It's Back To Business

By Callum ThomasStock MarketsFeb 13, 2018 06:35AM ET
www.investing.com/analysis/sentiment-snapshot-back-to-business-200289728
Once This Correction Runs Its Course It's Back To Business
By Callum Thomas   |  Feb 13, 2018 06:35AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

The much awaited and widely predicted correction (that no one really ended up predicting) has turned 2 weeks old now, and driven the S&P 500 down almost -12% top to bottom. So it's timely to take a snapshot of where sentiment is sitting across a number of key indicators including the weekly survey on Twitter.

Short-term measures of sentiment such as the VIX have reached extreme fear levels, yet others such as the weekly survey managed to bounce on the week. Under the surface there are a couple of key divergences e.g. the contrast in technical vs fundamental sentiment – which to me proves highly illustrative of the kind of environment we find ourselves in. Studying the slower moving Euphoriameter, we can draw some clues from the past, and by looking at a late-cycle correction in the late 1990's one could draw the conclusion that once this correction runs its course it will be promptly back to business...

The key takeaways from this investor sentiment snapshot are:

  • "Fundamental" sentiment remains resilient while "technical" sentiment is well below average.
  • The outlook from here depends powerfully on what happens to fundamental sentiment.
  • Elsewhere, the divergences in the survey charts point to a fall in the VIX, although the VVIX looks to be arguing otherwise.
  • The blip down in the Euphoriameter is similar to some of the previous corrections of the past 2 decades, most notable the 1998 correction.
  • If this is a late-cycle 1998-style correction it could be "back to business" in short order.

1. Technicals vs Fundamentals: A very interesting set of charts, these two show the mixed feelings of investors with the fundamental net-bulls remaining in a clear uptrend, while the technical bull-bear spread remains very low vs history, despite bouncing on the week. This is a telling set of charts.

SPX Vs TDC Equity Sentiment Poll
SPX Vs TDC Equity Sentiment Poll

2. Fundamental Sentiment: Honing on on the "fundamentals" sentiment, the view is consistent for bonds and equities, and there is an ever-so-slight, but noticeable turn here. It's really down to this chart as to how the bond and stock market selloffs play out from here. If fundamentals sentiment holds up or improves it will be onwards and upwards for stocks and down for bonds, and vice versa.

Equity Vs Bond Fundamentals
Equity Vs Bond Fundamentals

3. VIX vs Equity Sentiment: Similar to the first chart, we have another one showing some 'disagreement', with the overall bull vs bear spread rebounding, in contrast to the VIX heading higher. Odds are the survey respondents are on to something with this chart.

VIX Vs Equity Sentiment Poll
VIX Vs Equity Sentiment Poll

4. VVIX vs VIX: That said, while the VIX has gone some ways in closing the gap against the VVIX or VIX of VIX (implied volatility of the VIX), you could argue that a gap remains, but it's probably a more compelling argument that the very extreme reading in the VVIX represents a capitulation/reversal point.

The VIX Vs The VIX Of VIX
The VIX Vs The VIX Of VIX

5. The Euphoriameter: Final chart is the Euphoriameter which has started to come down with the flash readings. The move is relatively small compared to the 2015 correction, but is not too far out of line vs the 2010 and 2011 corrections. While sentiment is certainly starting to get shaken, you could argue that there is more water to go under the bridge here. But then again, the 1998 experience showed when you get a correction like this late in the cycle, it can often be the case that it's just a quick shakeout before getting back to business.

The Euphoriameter
The Euphoriameter

Once This Correction Runs Its Course It's Back To Business
 

Related Articles

Once This Correction Runs Its Course It's Back To Business

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

 
Are you sure you want to delete this chart?
 
Write your thoughts here
 
Replace the attached chart with a new chart ?
Post
Post also to:
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
 
Replace the attached chart with a new chart ?
Post 1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email