The VIX and DSI suggest the Stock Market is about to tank
Anyone that is a regular visitor to 321gold.com is well aware I am a contrarian. I’ve been an investor for fifty-five years. In my experience you can be a contrarian or you can be a victim. You need not know anything about investments or the stock market, or interest rates or any of the hoopla touted by everyone else as drivers of investing. However some understanding of people is key.
People are dumber than bricks anytime they run in a herd. They are always wrong. The mob wants to buy at tops and sell at bottoms. If you understand what the mob is up to, you can make a lot of money without knowing anything about all the other factors “advisors” want to talk about.
Someone wrote an article in December of 2015 calling gold a chia pet. I commented on it at the time but I’m way too lazy to go look for it and Google can’t find it. The timing was perfect because the writer was a former gold bug that tired of waiting for Godot. The article nailed the bottom for gold and resource shares. They shot higher over the next seven months, no doubt to the great shock of the forecaster of doom for gold.
We have about the same thing today for gold. One of the MSM folks catering to the sheep came out with a twitter saying "GOLDBUG MACRO IS DEAD." In time I suspect we will realize his timing was perfect. When guys like him finally figure out gold has been going down, we are at a tradeable bottom.
My favorite form of measuring investor psychology is called the Daily Sentiment Indicator or DSI for short. The DSI measures what investors are actually doing. Any reading above 90 suggests investors are highly bullish. Anything below 10 says investors are very negative. Above 90 and below 10 always will show at tops and bottoms. Always.
As of Monday the VIX was showing a reading of 9. Investors are complacent and don’t expect much change in the markets. The S&P was 90, the Nasdaq 85 and the Nikkei also showed a reading of 90. The low VIX says fireworks are going to start very soon and with the DSI just a little higher on the other exchanges; we are about to have a major tradeable top.
The market did trade slightly higher on Tuesday lowering the DSI on the shares and raising it slightly on the VIX but I think we are soon going to turn.