This summer has been a rollercoaster ride for traders. After a bullish month in June, July and August were marked by extreme volatility. I reviewed the sentiment indicators to understand where things are heading as we move into fall, and the news is not good.

SPX 500 chart

The SPX 500 chart is still quite bearish. After hitting all-time highs in July, there was no follow-through in August. Instead, volatility increased. Between the trade war with China, out-of-control tweets and Fed policy, the news worried everyone.

Volatility Index

The Volatility Index, or VIX, fell sharply last week from 23 to the mid-teens. Market players seemed to believe the worst was over, but then on Friday, the Fear/Greed Index shot up to almost 20 during a brutal day of trading. Since late July, the VIX has risen to a sustained, elevated level.

Sentiment Indicators

Put/call ratios slid early last week but woke up and delivered some pain to call buyers on Friday. Breadth remained decent until Friday. It even sported a new buy signal midweek, but the increase in decliners wiped that out.

The market’s extreme movements have produced a steady turnover. I don’t care what the pundits and media are saying. Volume has been strong in August, even though it’s been sellers out in full force.

Sentiment polls back this up. They are clearly showing that the bulls are feeling timid. The AAII sentiment survey shows a paltry 26% for the bulls, while the bears clock in at 39.7%.

Meanwhile, the oscillators continue to fluctuate around the zero line, but they may reach an extreme reading within a few days. When that happens, we may see a buy signal flash, but it will be short-lived if the SPX 500 chart does not improve.

Is it any surprise that the Fear/Greed Index sits at 18? This is an extreme “fear” reading.

In short, the sentiment indicators are looking bearish after a volatile summer. Tread – and trade – carefully.