VIX, Investors Intelligence Data at Odds
by Chris Rowe 08/27/08If you base your stock and option buying based on when "everyone else" is bullish or bearish, then it's time to shake up your approach to making money in the market.
I say this not to be a contrarian but instead to tell you what I've learned the hard way: When you feel the same way about the market as everybody else around you, then something's wrong.
Personally, I feel ever-so-comfortable when I'm in the minority. This is my happy place.
Now is the time to find yours.
GET AWAY FROM 'GROUPTHINK'
Right now, the bearish camp is mob-deep, holding hands and singing "Kumbaya." I encourage you to get away from all that noise. But what should we be listening to?
More by Chris Rowe
There are two main sentiment indicators that I like to watch. One is the Investors Intelligence Advisors' Sentiment indicator, and the other is the well-known CBOE Volatility Index (VIX).
Sentiment indicators are contrary indicators -- if too many investors are bullish, it's a bearish indication, and vice versa.
What's strange is the Advisors' Sentiment Indicator is showing extreme bearishness, which means we are likely close to an intermediate bottom. On the other hand, the VIX is showing a complacent market.
This kind of scenario is confusing to even those traders who've seen pretty much everything. Typically, both indicators are spot-on. Anyone who has used my proprietary Internal Strength System and studied both indicators knows that, 9 out of 10 times, the buy signals (and, in the case of Advisors' Sentiment, sell signals) are right on time.
SO WHAT'S UP WITH THE DISCREPANCY?
Well, let's first speculate on the discrepancy and then talk about what's happening. First, let's consider what each indicator is.
The Advisors' Sentiment Indicator is the result of a poll taken from over 200 newsletter-writers asking whether they are bullish, bearish or in-between somehow.
More By This Expert
Chris Johnson
Why Does My Call Decline When the Stock Gains?
Understanding the factors that affect option pricing is crucial to your trading success.
Use a Strangle to Profit From Starbucks' Earnings
Starbucks has been a big mover -- up and down -- after earnings, and the company is schedule to report today after the close A strangle creates a win-win for traders.
The earnings projections for Starwood Hotels (HOT) are ridiculously low. Get in before they blow expectations out of the water.
Bullish call activity in YHOO is hitting highs for the year ahead of earnings -- but when they announce it will be a wake, not a party.
XOM may hit earnings estimates, but a big, positive reaction is not likely to materialize, and the newbies will fall over themselves to dump the stock.




