Traders buy the dip as Trumphoria begins to fade

There were two headlines about bearish sentiment on CNBC and Yahoo Finance this week that were classic.  CNBC claimed the fear gauge was “breaking out.”  Yet the VIX still shows plenty of bullishness (62nd percentile 10-year reading).  I pay little attention to the VIX: it’s mostly noise.  Far more important are the VIX futures 3 months and out.  The 3-month VIX closed the week at a 95th bullishness percentile.

 

Earlier in the week, this Yahoo Finance headline read: “By one measure, investors have almost never been this nervous about stocks.”  Reading the fine print, their methodology is flawed, even admitting that the cost of downside protection is cheap.  Delusional!

 

Buy-the-dip is so ingrained by 8 years of bull market behavior, hardly anyone sees any downside.  The crowd is rationalizing their behavior with talk of “fear” and “cash on the sidelines.”  All nonsense, of course.  This week assets in Rydex MMF dropped 13% to an all-time low $457 mil.

 

This all took place while the averages were breaking down with financials leading the way (XLF -2.63%).  On Fast Money at Thursday’s close, the fast monkeys were all foaming at the mouth to buy bank stocks!

Market timers remain all-in.  The NAAIM Exposure Index jumped 19% to 86.7%.  Among assets in Rydex bull and bear funds, just 7.6% are positioned for the downside, weighted for leverage.

 

I realize we shouldn’t get overly infatuated with market timing, but this “what, me worry?” behavior struck me as noteworthy.  So far, at least, this is very different from the breaks in August 2015 and January 2016 in which Rydex MMF balances and 3-month VIX futures spiked.

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