Many traders have latched onto my not-so-subtle caution in recent weeks even as the markets have ground their way to new highs. As I put it last weekend, they’ve done so but without joy. This continues to be my own sentiment, and as a result I manage risk by reducing size and being even more selective.
The OVI sentiment has turned red again, and it’s worth remembering this is a longish term indicator that does not flip-flop very often. From an OVIsi point of view it means that currently the options bulls and the bears are pretty evenly matched. Behind the scenes we do have tests that suggest a further advantage by exhibiting an ‘Amber’ signal in this sort of situation. I’ll talk more about this when we’ve concluded that research piece.
For now there continues to be reasons to be cautious, albeit with a few bright spots. As suggested last week the financial stocks have looked strong and are starting to move again. This is classic behaviour where groups of stocks within a sector start to do the same thing all together.