What Will Signal the Bottom?
Editor's Note: The following was written by James Kostohryz and appeared on Minyanville's premium product, the Buzz & Banter. It's being reproduced here for the bennefit of the Minyanville community.
A great many people, including myself, have been looking for signs of capitulation in options indicators such as put/calls and the CBOE Volatility Index (VIX). However, I'm now of the belief that put/calls and other readings of sentiment won't signal the bottom this time around. I believe these indicators may turn decidedly bearish after the lows are behind us and during a rebound. This may be the wall of worry necessary for a counter-trend rally.
Options traders are relatively sophisticated and most aren't brazen enough to be shorting the market at these depressed levels. That to me is explaining the lack of a spike in put/calls and the VIX. These same traders will probably be shorting into any rebound, however, and increased indications of buying puts and shorting interest may turn into a positive contrarian factor going forward.
In the meantime, I'm seeing plenty of capitulation in indicators of less “sophisticated” sentiment, such as the AAII weekly sentiment survey, where bearishness is off the charts (AAII bears are 70.27% - the highest ever) and participation is collapsing. The plain old price action is also showing capitulation.
So I'm buying here.
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at least among the many many people on minyanville, marketwatch, cnbc, elliott wave, etc
it's interesting, and kinda encouraging, 'cause lots of people are putting a lot thought and attention to see if the last frost of (this)winter is finally passing
ew has a nice pair charts in this past wed's short term update, comparing extremes from late last yr to now in regard to the advance/decline line, trin, and the vix
i won't pretend to know their significance (each indicator), but i could fairly easily see that the intensity figures for last year are still at least a touch stronger/below those of these last few day's
that's good, if ew is correct - that we're in a fifth ending wave of a big primary wave, rather than the more intense 3rd wave late last yr
ie, the current signs of exhaustion, capitulation, etc, shouldn't be as severe as late last yr
and, an upward correction wave of primary force, "should be next"
ie, is probable (not certain)
i still think of it as when the tide is starting to go out (i grew up in houston and galveston) -
when the tide's shifting, the incoming waves can still beat you down (though not often in galveston, 'cept storms), yet you have to dig your toes into the sand 'cause the undertow's smiling slipping you a sip of sea wanting to pull you in deep
but it ain't no smile you wanna follow ;-)
the tide is turning, and you gotta hold on, 'cause it's almost over, but could get worse....
ain't that life!
re indicators, seems (as a guess) exhaustion's so severe, a pointed news item, like altering mark-to-market (or fixing the cds', or sending each family a share of that stimulus, to let us decide how to spend our own money ) - might be the burst to wake up to ;-)
any chance you might do an article re the vix and options? option info is currently my fab financial diet of choice....
and right now, since i just started w/options, i'm on a restricted menu of covered calls ;-)
"This time is different" - famous last words. EVERY other major bottom, VIX has spiked. I'll be very glad if this is a bottom without a VIX spike, and am ready for that, but I'll believe it when I see it.
