S&P 500 Update (August 2024): Sentiment Indicators Point to Extended Decline

The equity markets have been pretty erratic this month, with the S&P 500 Index showing more signs of sliding downward than bouncing back.

In my most recent video, I looked at three important market sentiment indicators that suggest we might be in for more rough times: the VIX Volatility Index, the AAII survey, and the NAAIM Exposure Index. 

First up, the VIX Volatility Index briefly shot above 65, which is huge — it’s only happened three times since the Great Financial Crisis in 2008. This kind of volatility usually signals meaningful stock market drops, although there’s some talk about zero DTE options making the VIX readings look more extreme than they are. 

Then there’s the AAII survey, which measures individual investor sentiment. It flipped from a euphoric bullish reading above 50% to a more neutral level recently, a shift that often points to market burnout.

Lastly, the NAAIM Exposure Index, which gauges where money managers are allocating their clients’ capital, has dropped from leveraged long positions to a more cautious, market neutral stance over the last five weeks.

These indicators are telling us that we’re likely in for continued volatility and a potential market downturn on the S&P 500 Index and other major indices. Even if we see some brief rebounds, the weight of the evidence suggests that the overall trend seems bearish.

• How does the spike in the VIX above 65 correlate with historical market declines?
• What does the recent shift in the AAII survey from euphoric bullishness to a more neutral stance imply for future market movements?
• Can the NAAIM Exposure Index’s transition from leveraged long to neutral positions be a leading indicator of further market weakness?

Video: Is the S&P 500 Index Nearing A Major Stock Market Correction?

S&P 500 Index Chart w/ Sentiment Indicators

Twitter:  @DKellerCMT

The author may have positions in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.