Super Sentiments & Sliding Stocks


I’ve been playing around with a few new modelling and data extraction techniques lately because, let’s be honest, there isn’t a lot of joy to be had trying to pick a winner based on fundamentals or performance. The ASX has had a few scary days recently, and this all means that people are freaking out and devaluing companies left right and centre. At least you can watch it happen in real-time high-definition glory at The Market right?

So digging a little deeper, investors around the globe seem to be exhibiting classic signs of a panic and herd together to sell off stock every time the market seems to be taking a hit. A few of the Wall Street Volatility Indexes are peaking at levels last seen during the dreaded GFC. Oh dear.

Luckily for us the ISE (International Securities Exchange) put together a daily investor sentiment index, which at least gives some kind of warning as to what fresh hell we may be in for. I’ve plotted the index along with the ASX200 benchmark and our old mates ANZ (Unfortunately, we could not get stock quote ASX:ANZ this time.) below. The ISE Index is labelled ‘Equities’.

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Looks complicated, but the ISE index is derived from a simple idea, the ratio of call to put options traded. Call options increase in value as the underlying security does, whereas put options increase when the underlying tanks. The ISE checks how many of each are traded on a given day and voila, you get a fair indication of how all the market participants feel things are going. If the ISE exceeds 100: Things are great, investors think stocks are going to appreciate woooo! If the ISE falls below 100: Sad hedge fund managers everywhere.

I’ll get more in depth with this over the next few weeks, but here’s the correlation table for the ISE and the ASX, as well as a choice roughie (FAR (Unfortunately, we could not get stock quote ASX:FAR this time.), they drill for oil in Africa. Thought I’d see how a speculative investment relates to the ISE). Interesting to note how closely ANZ tracks the ASX (0.916 Correlation Coefficient), based on that relationship now might be a great time to sell out (unless you like thrills and market turbulence of course).

Sent2