For months I have been discussing on Market Shrinkology and messaging on StockTwits about the high level of sentiment volaitility and how it is a critical compnent of the landscape across equity, options and commodities markets. It is the reason why Steven Place’s blog post this morning on the coming vol break on $BIDU is so timely.
What I Mean by sentiment volaitility is this. The market as a whole is reacting knee jerk style to every bit of news and every gap down open (we’ve had 4 or 5 in the last couple weeks). Participants are riding the tilt a whirl and moving from very bullish to very bearish and back over short periods of time.
We see this in the AAII Sentiment numbers where the difference between bulls and bears is making double digit moves on a weekly basis.
As I mentioned above, the way to play this, is to buy vol at opportune moments – during the periods of calm between mood swings – as I also pointed out in my post last month on the $XLF before it ran to 15.70.
All this reactivity and we haven’t even had a proper 5% correction on the $SPX since the Nov 5 high close of 1225.
For the record, I dont think the market tops when reactivity is this high on this shallow of a correction and base line state is jittery.
As well, I am usually a vol seller kind of guy but see opportunities as a swing vol buyer as it were.