A large share of daily market movement has nothing to do with the economy. It is the mechanical consequence of who is positioned how: funds that must sell when volatility rises, dealers hedging options, index funds rebalancing at month end, companies barred from buying their own shares before earnings. Knowing this dial prevents mistaking machinery for meaning.
The question it answers
Who already owns this, and what are they forced to do next?
Reading it
Tight / hot
Crowded and leveraged. Low volatility, high margin debt, everyone on the same side. Small shocks produce disproportionate moves because the exit is narrow.
Loose / cool
Washed out. High cash levels, bearish surveys, hedges in place. Historically the better starting point for forward returns, and the most uncomfortable moment to act.
The mistake people make
Common error
Treating sentiment as directional. Extreme readings are contrarian at the extremes and meaningless in the middle. Most of the time this dial should be ignored.
It is built from 16 factors, listed below.
Its neighbourhood
Everything this entry connects to directly. Click any point to follow it.
Factors that feed this dial
Read together, these resolve to one direction.
- Interest-rate volatility
- Implied volatility (VIX)
- Put/call ratio
- Retail investor sentiment (AAII)
- Fund manager survey (BofA)
- Fund flows
- Margin debt
- CTA and trend-following positioning
- Volatility-control and risk-parity funds
- Dealer gamma positioning
- Zero-days-to-expiry (0DTE) options
- Corporate buyback blackout windows
- Retail options and leveraged ETF flows
- Market breadth
- Skew and implied correlation
- Hedge fund gross leverage and crowding