VIX

It's usually folly to place too much emphasis on any one indicator, but we've been leaning pretty heavily on the VIX lately. The "fear gauge" has seen a record fall since the last session in December.  Hopefully this is just a natural market movement, and not related in some way to trading activity based on VIX derivatives. If natural, then it's a remarkable change in sentiment.  Everything we've looked at related to its recent moves has suggested trouble for stocks, in the short-term at least (nothing longer than a few weeks). Here's another one. Right away on Wednesday, the VIX dropped nearly 3% from Tuesday's close, pushing that index to its lowest level in more than five years.  Then it reversed during the day, closing higher by more than 1%.		We've looked at one-day reversals in other stocks and indexes before, and they're usually not very reliable.  This one has been, however.  A week after these reversals, the VIX was higher 10 out of 12 times, by an average of 7.4%, and the two losers were both less than -1%. If the VIX goes up, then that usually means stocks go down, and we can see that in the table below.  The table shows the returns in the S&P 500 following VIX reversals like we witnessed on Wednesday. During the next week, stocks clearly struggled.  After that, there didn't seem to be any impact.  A month later, in fact, the S&P showed excessively positivestats, with only one small loss. This supports most of the other VIX-related tidbits we've looked at in the past several days, suggesting a significantly higher-than-average risk for stocks in the short-term of 5-15 days.

   

 http://www.sentimentrader.com/subscriber/comments/2013/sentiment_report_20130109.php#updates