People Still Think Bonds Are Scary
The question is, does that make bonds a buy here? And the Nasdaq is close to being oversold.
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Wednesday brings us the NVIDIA earnings, so maybe that will shake things up in the market. Clearly, having the bonds rally is not shaking much up as the VIX continues to sink. The Daily Sentiment Indicator (DSI) for the VIX is now at 15. It has come down to this 15 level several times in the last few weeks, and each time the very next day the market leans lower, so the VIX rallies and the DSI lifts.
Now let’s talk about the VIX put/call ratio. Here too, we have verged on an extremely low reading (under 0.20), and each time we get readings at 0.20 or 0.21, and that is that. As a reminder, a reading sub 0.20 is usually a warning sign that volatility is coming, or at least that the pros are betting heavily on a big move in volatility, and we typically want to be on the same side as the pros.
The 21-day moving average of the VIX put/call ratio is now at 0.38, peaking a fraction under that line I have drawn on the chart. Since early 2025, it has rarely slipped under the line by much. You can see each time it has, it hasn’t stayed there long, as it then shoots right up.
When this moving average is low, it means the pros are betting on a higher VIX. And unlike the other put/call ratios, this does not tend to be contrarian. We want to be on the same side as the pros.
I do not know how to square this with the upcoming oversold condition in Nasdaq. Well, I do know. What I wanted was for Nasdaq to have a whoosh before getting oversold so that the VIX would rise, which would satisfy the call buyers (of the VIX) and would get the DSI of the VIX well off that 15 level. So far, none of that has happened.
Heck, we even got quite a move in bonds, and still, stocks haven’t responded much. I drew in this line on the yield on the Ten-Year last week, and sure it’s dipping under it, but not with much oomph. Not yet, at least.
What we still have is yields peaked in late July, but we haven’t seen a lower low yet (under 4.60% would do that). But the sentiment hasn’t gotten much better toward bonds. Folks still seem to hate them. Although the DSI moved from 19 a few days ago to 27 today. Anecdotally, though, the chatter is still pretty bearish on bonds.
I think if we can get yields moving down some more, then I’d look for a push to that green line (around 4.50%). I figure if yields can get there, then by then the narrative will somehow change from scary bonds to not so scary bonds. I still think bonds are bottoming.
