It is an essential part of our process to measure and map Wall Street positioning. After doing the fundamental research, that's how you get a read on whether an asset class is getting crowded or oversold.
If you were watching consensus positioning over the last few days it likely saved you a lot of grief.
On Tuesday, as the stock market hit yet another all-time high, investors capitulated on bearish positioning and complacency grew ever more pervasive, according to our analysis of aggregate positioning in options markets.
That's why, into Tuesday's all-time highs, Hedgeye CEO Keith McCullough wrote in the Early Look:
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"In other words, if I was running a hedge fund again: A) My longs were overbought The playbook of the process says you simply book some gains and raise cash so that you can re-invest on pullbacks to the low-end of the range in whatever it is that you might like at lower prices." |
Now, on today's selloff, we're issuing buy signals to our subscribers...
Why We Said Sell the Rip Then Buy the Dip?
A critical tool for measuring and mapping investor consensus positioning in options markets and what this implies for expectations of future volatility. We look at implied volatility (investor expectations of future volatility in options markets) relative to realized volatility (historical volatility). Generally, when implied vol is trading at a premium to realized vol, investors are fearful of future market gyrations. Conversely, an implied volatility discount suggests optimism.
When investor consensus is piling in and implied volatility premiums or discounts gets stretched too far in either direction that can help tell you when to buy and sell.
Let's take a closer look via McCullough in today's Early Look. On Tuesday, August 8th, 2017...
- The S&P 500 barely had an implied vol PREMIUM (vs. 30-day realized) of +2%
- The NASDAQ had an implied volatility DISCOUNT of -5%
This implied a significant amount of bullish complacency and bearish capitulation at the all-time highs in U.S. equities.
And then, just two days later, it all changed...
- The S&P 500's implied volatility ramped to a +37% PREMIUM
- The NASDAQ's implied volatility ramped to a +26% PREMIUM
(See Chart of the Day below)
Bottom Line
Investors are now too fearful (see implied vol premiums above). That should get you excited. You can now buy some of your favorite assets on sale today.
(Click here to get a free month of access to some of our top ETF ideas... this deal goes bye-bye on Friday 11:59pm EST.)
