2C-P Sentiment Indicator

2C-p = 8.9 and rising from a low of 1.4 on 4/10/25  

Invented by Tom Drake, the 2CS-p is the "5 day moving average of the product of the vix and p/c ratio."   The scale runs from 0 to 100% with 0% max bullishness and 100% max bearish reading for us contrarians.

To calculate 2C-p, Larbro explains: "Take each day's p/c ratio and multiply it by that days vix. Take the sum of those results for that day and the previous 4 (5 total) and percentage rank them from 0% to 100% in terms of size against all the other data you have. The higher the numbers (5-day sum of p/c x vix), the higher the ranking. Then subtract that % ranking from 100% to "invert" the ranking so that lower 2c-p correspond to lows in the market and vice versa.

Chart of S&P 500 and VIX vs Time

In my case they are ranked from today all the way back to Feb 10, 2003, the earliest I have data for. So, in a nutshell if yesterday's 2c-p was 7.8% (which it is) that tells you that only 7.8% of the sum of the 5-day p/c x vix (aka the 2c-p) is lower than yesterday's value."

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VIX Indicating We Are Testing November 2008 Bottom

Check out this chart of VIX and the S&P500 (more charts) from 2002 through today.

Click chart from stockcharts.com to see full size image

Note how VIX peaked while making the two bottoms in 2002 then made a lower peak when the S&P tested those lows at a higher level in March 2003.

Now look at the chart for today. VIX peaked twice last year as the market made two bottoms in 2008 with the major bottom on November 21, 2008 similar to the October 9, 2002 major bottom.

Click chart from stockcharts.com to see full size image

VIX is spiking now at a lower high very similar to how it spiked in March 2003 when the S&P500 tested its October 2002 low while making a higher low.

The market fell faster in the 2007-2008 bear market than it did for the 2000-2002 bear market so it would make sense that the bottoming process would be faster (time more compressed) too.

IF you are trading the markets and buying bounces off potential bottoms, then you will want to use stops just below the November 2008 lows, if not higher until we have a higher low. Until then, it COULD be premature to assume the bear market is over.

Watch the VIX. If it makes a lower low for 2009, this would be bullish.

I currently follow six sentiment indicators in my newsletter. These indicators are:

• ISE (International Securities Exchange) Sentiment Index
• II-BBS: Investors’ Intelligence Bull Bear survey
• CBOE (Chicago Board Options Exchange) Put/Call Ratio (CPC)
• AAII Bull/Bear Ratio (American Association of Individual Investors)
• VIX (CBOE Volatility Index)
• State Street Investor Confidence Index

More important charts to follow:

• US Treasury Rates at a Glance
  
• LIBOR Rates at a Glance
• Major World Market Graphs At A Glance

VIX: CBOE Volatility Index Shows Massive Fear

Currently the VIX "fear indicator" is pulling off record high levels going back to 1990.

Currently the market is testing the October 10th and 27th lows. If it can do it with a lower peak VIX and lower volume, then this is a good sign for a rally, if not a cyclical bull market.

At the same time, investors are so scared of risk they bid the 13-week treasury bill down to 0.05% yesterday.


For more rates, see US Treasury Rates at a Glance

Historically, when investors act irrationally, doing the opposite provides large rewards for those who have the ability to look to the long term. Just as investors poured into risky internet stocks with no earnings to make the March 2000 top, dumping quality growth companies that pay dividends for the safety of 0.05% Treasury bills is not rational in the long-term.

"Buy when there is blood in the streets"
Nathan Rothschild, the British member of the Rothschild banking family in the early 19th Century commenting on the best time to buy. He is reputed to have made a fortune from the Battle of Waterloo stock market panic. His full quote is believed to be "Buy when there is blood in the streets, even if the blood is your own."

Warren Buffett is a buyer. See Warren Buffett Buy Signal.

Short-term, the market can do anything but for the long-term, I agree with people like Warren Buffett. When you get the VIX and other fear indicators showing investors are acting irrationally out of fear, rewards are there for those who can look to the long term. To learn what I have been buying with my own money and recommending to my newsletter subscribers, Subscribe TODAY and get the November 2008 issue for FREE!

Definition: The VIX is the Chicago Board Options Exchange (CBOE) Volatility Index. The VIX shows the market's expectation of 30-day volatility. It is calculated from both calls and puts that are near the money. The VIX is a popular measure of market risk thus making it another great contrarian “fear indicator” useful for short-term market timing.

Market Timing Disclaimer: No sentiment indicator, or any indicator for that matter, is 100% reliable. I look at sentiment as head winds and tail winds. When sentiment is terrible, then it acts like a tail wind for your returns where you could see further declines, but long term, it is best to be buying when most others are selling. Likewise, if we see sentiment get too bullish, then I would consider lowering my portfolio asset allocation. It seldom pays to be buying stocks when EVERYONE is talking about stocks and how much money they are making at cocktail parties.

==> Very Best CD Rates with FDIC <==

In addition, I am not market timing but for a small portion of my explore portfolio. I use market-timing indicators to tell me it is a good time to buy so I can add to positions when the market is down and thus help me overcome my fear to rebalance back to my target asset allocation. Likewise, when the market-timing indicators are saying to sell, they usually come when the markets are high where I want to be taking profits. The market timing indicators at market highs help me get over my greed and take profits. Now and then, I may make an asset allocation adjustment based on the Fed Model saying the market is over or under valued. Some call that market timing, but I do not. Also, I have stayed pretty close to 70:30 equities-fixed for many years despite the Fed model which has its own set of flaws.

VIX: CBOE Volatility Index Signals Fear is High

This VIX chart shows that buying equities when the the Chicago Board Options Exchange (CBOE) Volatility Index has been above 35 has worked out very well for short term gains even during the March 2000 to October 2002 bear market.

"Buy when there is blood in the streets"

Nathan Rothschild, the British member of the Rothschild banking family in the early 19th Century commenting on the best time to buy. He is reputed to have made a fortune from the Battle of Waterloo stock market panic. His full quote is believed to be "Buy when there is blood in the streets, even if the blood is your own."

Click chart courtesy of stockcharts.com for full size image

Currently the VIX is at 33.80 but it spiked to 42.5 last week. I was a buyer for my own accounts last Wednesday, Thursday and Friday. To learn what I bought for my newsletter explore portfolio last week and what I recommend now, subscribe Today!!

One could give in to the fear, cash in your stocks and buy CDs, (CD rates,) money funds, US Treasuries (US Treasury Rates) or even gold, but over the long term, stocks have out performed. What better way to boost your returns than to buy when the markets are 25% or so off their peaks? [See Market Update for September 21, 2008.]

Using periods of major market weakness to rebalance is not market timing either. Why wait for January 1, 2009 to do your "annual rebalancing?" The markets could recover significantly by then. See the article "Using Asset Allocation to make money in a Flat Market" to see how that works.

Definition: The VIX is the Chicago Board Options Exchange (CBOE) Volatility Index. The VIX shows the market's expectation of 30-day volatility. It is calculated from both calls and puts that are near the money. The VIX is a popular measure of market risk thus making it another great contrarian “fear indicator” useful for short-term market timing.

Market Timing Disclaimer: No sentiment indicator, or any indicator for that matter, is 100% reliable. I look at sentiment as head winds and tail winds. When sentiment is terrible, then it acts like a tail wind for your returns where you could see further declines, but long term, it is best to be buying when most others are selling. Likewise, if we see sentiment get too bullish, then I would consider lowering my portfolio asset allocation. It seldom pays to be buying stocks when EVERYONE is talking about stocks and how much money they are making at cocktail parties.

==> Very Best CD Rates with FDIC <==

In addition, I am not market timing but for a small portion of my explore portfolio. I use market-timing indicators to tell me it is a good time to buy so I can add to positions when the market is down and thus help me overcome my fear to rebalance back to my target asset allocation. Likewise, when the market-timing indicators are saying to sell, they usually come when the markets are high where I want to be taking profits. The market timing indicators at market highs help me get over my greed and take profits. Now and then, I may make an asset allocation adjustment based on the Fed Model saying the market is over or under valued. Some call that market timing, but I do not. Also, I have stayed pretty close to 70:30 equities-fixed for many years despite the Fed model which has its own set of flaws.