Despite the Double Bottom on the SPX, Sentiment is Mixed

Today, I am going to do something a little different, which is focus on sentiment components rather than composites.  The reason is that some indicators are showing a strong buy (SPX), while others are showing a sell, and when combined I get a neutral signal.  For instance, the put/call ratio for the CPC and CPCI (less VIX) are neutral, while the equity P/C is a strong buy and the ETF P/C is a sell.  First, I will show the charts for the latter P/C ratios as well as the VIX term structure for the SPX (VXV/VIX) and NDX (VXN/VIX), and try to explain what I think is going on.  For the gold bugs, no charts, but sentiment is neutral so no big selloff is expected.

 The equity P/C shows extreme bearish sentiment about equal to the Aug 2015 selloff.

The VIX term stucture (SPX) also shows extreme bearish sentiment similar to Jan 2015.

The ETF P/C, however, tells a different story with bearish sentiment below the mean similar to early 2015 and the Nov 2015 top.

The VIX term structure (NDX) is not as reliable as the SPX form, but again the low readings are more consistent with tops than bottoms.

What I decided must be going on is that the average stock, represented by the equity P/C and VIX term structure (SPX), has been a bear market for over a year and sentiment has now reached a bearish extreme indicating a buy.  However, the large cap stocks (ETFs), especially the techs (ie, FANGS) that have been holding up the averages still have further downside before a significant rally is expected (ie, 10-15%).

So if you are a stock picker now might be the time to start picking up beaten down stocks (gold miners might be an example of what to expect), otherwise lower lows are expected for the averages.  I have using NDX 3800 as a target since mid-Jan and with trend lines from 2009 coming in around SPX 1750 and NDX 3780, a strong rally from those points is expected when/if reached.