VIOV - Pessimism Growing

Summary

• The use of margin (borrowed funds) and futures to enhance returns is a reflection of investor optimism/pessimism.
• The Year-over-Year change in margin use reflects the rapid development of pessimism of past significant buying opportunities.
• The current environment is as pessimistic as any of past periods which proved later to have been significant opportunities to add capital to equity markets.

One of the lessons of history is that market lows have always been identified by extreme levels of pessimism. The use of margin(borrowed funds) and futures to enhance returns is a reflection of investor optimism/pessimism. Optimism often proceeds market tops but it is pessimism which is more useful identifying market lows, especially extreme pessimism. The Year-over-Year change in margin use reflects the rapid development of pessimism of past significant buying opportunities. Not surprising should be the correlation with the Net Non-commercial Futures Positions.

The current environment is as pessimistic as any of past periods which proved later to have been significant opportunities to add capital to equity markets.

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