Trader’s Narrative

Maybe it was too much bubbly and partying over the holidays that got the retail options traders just a tad too giddy for their own good.

It’s not surprising to see the market falter heading into the new year when the ISE Sentiment Index reached the altitude of 168 on the last trading day of the year (Dec 28, 2007).

This number isn’t extremely high and certainly not as high as the ISE has gotten in its history. But relative to recent readings, it is just high enough to make me uncomfortable.

We have a lot of other indicators lined up for the bull thesis so it is troubling to find this sticking out like a sore thumb. Of course, we never get a full confluence of indicators but the ISE is a very powerful and reliable one.

And since last time it helped me flagged a top in July: Turbulence Ahead For The Market, and the bottom in mid August: Market Due For Recovery, I can’t very well ignore it.

The weight of the indicators is still bullish, especially in the intermediate to long term, but right here, for now, I don’t think it is wise to be too aggressive in the short term. Unless the retail options trader pulls back their optimism we could be in for a rough patch.