Sunday, January 10, 2016

 Last weekend, I warned that the sharp drop in bearish sentiment during the Dec rally in the SPX from 2005 to 2082 would likely lead to an even sharper decline into mid-Jan, but I was wrong about the positive start to the month.  Here we are mid-month and now have an extreme bearish sentiment reading for the SPX.  First, the Composite#2 (Put/Call, VXX $ Vol, VXV/VIX) has now reached +1 SD from the mean, which typically indicates a +100 point or more move in the SPX.  Note that in the case of Oct 2014 and Aug 2015 bearish sentiment did go much higher.  Looking for SPX bottom in the1880-1900 range by mid-week.

The SPXU/UPRO etf ratio is showing much the same sentiment, where after warning of a likely decline in late Dec, is now indicating a significant rally is likely.

I am introducing a new etf indicator for bonds using the TBT/TLT as short/long synthetic put/call ratio.  Since there is no price index for bonds, I am using the TNX, 10-year yield measure, just remember that bond prices increase as yields go down.  Starting in Jan of 2014, bearish sentiment was very bearish for bonds and over the next 14 months rates dropped from 3% down to 1.6%.  Now sentiment is almost the exact opposite of Jan 2014 (extremely low), having fallen sharply following the Aug 2015 stock decline and more so recently.  Could this be the setup for Martin Armstrong's big bang when investors flee bonds and move into stocks?  It looks like bonds should top soon with 10-year rates possibly reaching 3% by the EOY.

Finally, the gold miners sentiment measure using DUST/NUGT etfs.  Here, we see a very sharp drop in bearish sentiment similar to bonds as investors seem to be fleeing to safety havens.

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