All day long we are bombarded with surveys of sentiment. When positive; all is well. When negative they are used by any and every long-only manager as yet another money-on-the-sideline-like as justification to be the contrarian and buy-the-dip. There are however many times when the survey of people's 'views' is quite different from their positioning (cognitive dissonance aside) and we prefer to look at real market sentiment indications for our signals. Case in point is CSFB's Fear Index - which, unlike VIX, measures the sentiment skew in options prices (how much more bearish or bullish put options are relative to call options).
CSFB Fear Index vs S&P 500...
In general, it shows a slight leading indication for larger-trend equity movements but most critically - it can signal when real market positions have become too bullish (or overly confident) or too bearish (overly conservative).
The fact is that the options markets are NOT currently overly bearish here - as they were in Q4 (green oval) - providing the short-squeeze-levered ammo for a rally here; just as options markets were overly bullish (red oval) as the end of LTRO2 began - which provided the initial levered-long-squeeze ammo for the current sell-off.
So the next time you hear someone saying how negative sentiment is - and that's a reason to buy - show them this chart (of real positions - not a survey!) and tell them to move along.
The bottom line is that options prices (or real market sentiment) are in sync with equity prices here and show neither extreme bullish or bearishness.
Chart: Bloomberg

