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Here's what I wrote on Special Ops:

There are indications that the market is overbought and overly complacent here. Two articles caught my eye. I bought VIX calls, which are cheap now.

The Standard & Poor’s 500 Index’s best January rally since 1997 has pushed a pair of momentum and sentiment gauges to levels seen only 6 percent of the time since 1993, a sign the market is due for a pullback, BTIG LLC said.
The benchmark index’s 14-day relative strength index, which measures the degree that gains and losses outpace each other, rose above 70 yesterday for the first time since Feb. 18, according to data compiled by Bloomberg. Some technical analysts consider RSI readings above 70 a sign that stocks have risen too far, too fast. The Chicago Board Options Exchange Volatility Index (VIX), a gauge known as the VIX, fell below 20 for the first time since July on Jan. 19.
The last time RSI exceeded 70 while the VIX stayed below 20, 11 months ago, the S&P 500 reached a 32-month high before dropping 6.4 percent over the next month, data compiled by Bloomberg show. The VIX is the benchmark gauge of S&P 500 options prices.
“We’re definitely in a rare spot,” Josh Dollinger, Chief quantitative and technical strategist at BTIG in New York, said in a telephone interview. “These are extreme readings. They more often than not prove to be exhaustion tops.”

Bullish sentiment jumped to 48.4% from 47.2% in the previous week, according to the latest figures from the American Association of Individual Investors’ weekly survey.

Meanwhile, bearish sentiment dropped 18.9% from 23.6% a week earlier.

The folks at Bespoke Investment Group point out there have only been four weeks since the beginning of 2006 when bearish sentiment has been lower than current levels.

Two of those weeks came earlier this month, while the other two occurred in December 2012 and last January.

Interesting to note that bearish sentiment didn’t quite fall to these levels when the market topped in October 2007, or the most recent peak last May.

As Gongloff reported a few weeks ago, investors are talking like they’re bulls but investing as if they’re bearish. Same holds true now. ICI yesterday released fund-flow figures that continue to paint a bearish tone.

According to ICI, mutual-fund investors pulled $804 million from domestic equity funds during the second week of January, which more than reversed the $734 million of net inflows that went into those same funds a week earlier. These readings continue to show extreme reluctance among mom-and-pop investors to dive back into stocks.
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