Strong Calls On Anglo Am; Puts On Savient

VIX

By Chris McKhann

The recent market extremes coupled with the current low volume make investor sentiment indicators a hard read, but they are speaking loudly in a bearish tone.

The VIX is currently sitting at 44.28, up 0.39, or 0.89%. The nearest-month January future is higher at 46.15. The spot VIX had been above the front-month future pretty much continuously since Sept. 15, but when the spot price gets significantly below that future it is often a bearish signal for the overall markets.

The January future has been as much as 4 points higher than the spot. There have been other times that this gap has been wider than 3 points, such as back in late December 2007 when the SPX was at 1500 and again in late May 2008 when the index was still above 1400. Both were market tops before sharp declines.

The ISEE Sentiment Index is a put/call ratio with unique calculations that make it quite popular. High readings often coincide with markets about to drop, and yesterday the index had the highest reading of the year at 206.

Again, this type of sentiment reading is tricky at best with low volume and extreme markets. We have no history of these types of readings with the VIX above 40 and at market bottoms. Normally we get these readings at market tops, which makes them much easier to work with.