I recently turned neutral on stocks after their extraordinary strength in October. While there are numerous factors that affect stocks and numerous--and often conflicting--indicators, a good (contrary) indicator of investor sentiment is the VIX Index of option volatility.
In trying to identify market tops, there is little information in a low VIX level (which indicates widespread investor optimism), as low readings can persist and stocks continue rising for an extended time.
A high VIX reading, however, has been associated with market bottoms over the past fifteen years. When the VIX has been above 28.5 (less than 20% of the time), the S & P 500 Index has returned 40% annualized. It closed today at 34.5. Persistence at this level on the VIX Index, or even higher levels, will increase my confidence that stocks have greater near-term appreciation potential.
Steve Lehman
LehmanInvest.blogspot.com/
S & P 500: 1216
No comments:
Post a Comment