The Dow Jones index futures increased by 0.5%, surpassing 45,000, a level we haven’t seen since December and January. This rise happened after similar peaks in the S&P 500 and Nasdaq-100, showing that high-tech companies are leading these indices. The Greed and Fear Index has been swinging between extreme greed, currently sitting at 74, since early July. The VIX index stays neutral, while the put-call ratio shows signs of greed. Despite this, the current indicators don’t suggest it’s time to sell.

Buffett Indicator And Market Trends

The “Buffett indicator” shows that market capitalisation is at all-time highs compared to GDP, levels not seen since 2008 and 2000. Even with heightened fear and greed, high short squeezes remind us of the market’s unpredictable nature. The RSI is at 64, implying further potential for a rally. Earlier this month, the 50-day moving average crossed above the 200-day moving average, known as a “golden cross.” This usually signals a long-term positive trend. Recent trade agreements have eased market worries and boosted local investments, helping market growth. Even though market levels are high, sharp increases could still happen. It may be a good time to close long positions if supported by significant news. This week, the Fed’s rate decision and employment data are crucial events to watch. We view the Dow’s recent rise as a part of a larger rally, with the S&P 500 recently exceeding the 5,400 mark for the first time. This broad strength indicates a new phase in the bull market that goes beyond just tech companies. For derivatives, this environment favors strategies like selling cash-secured puts on major indices or holding long call positions.

Sentiment And Strategy Adjustments

The sentiment gauge is firmly in “Extreme Greed,” recently reaching 78, while the CBOE Volatility Index remains low, around 12. This suggests that the market is complacent, but it shouldn’t be seen as a direct sell signal. The combination of high prices and low volatility is ideal for traders using covered call strategies to earn income from their existing stock holdings. Although Mr. Buffett’s high market-cap-to-GDP ratio suggests long-term valuation risk, current momentum indicators tell a different short-term story. The put-call ratio recently dropped to 0.65, showing bullish activity in the options market. Therefore, we should be cautious about taking large short positions. Historically, going against strong positive momentum without a clear reason has been a losing strategy. The recent “golden cross” gives a strong technical advantage, indicating that this uptrend may continue. We are now watching the Federal Reserve’s upcoming rate decision, with markets suggesting a 99% chance of a rate hold, and the following jobs report. A dovish pause from the central bank, after a rate hike cycle, has usually been a bullish signal for stocks in the months that follow. Given the mixed signals of high valuation and strong momentum, we recommend that traders stay flexible rather than making big bets in one direction. This could be a good time to trim some highly profitable long call positions to secure gains before critical data releases. Using strategies like call debit spreads can enable continued participation in possible gains while managing risk. Create your live VT Markets account and start trading now.

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