A common reference for trader sentiment is emerging as a contrarian indicator for when to buy and sell stocks, according to Josh Brown. The CEO of Ritholtz Wealth Management said on Wednesday that investors should use the rapid changes in market sentiment to their advantage, while still staying mostly invested. "You can't get too bearish because in the end the best cure for the inflation blues is the growth you get from corporate earnings, dividends and the U.S. stock market," Brown said on " Closing Bell: Overtime ." "But anytime you see that VIX tick below 20, which I think is the new bottom of the range for the regime that we're in since coronavirus started two years ago, ... start calming down. Start taking stuff off, if you're a trader. Don't overstay your welcome. We had a nice run." The VIX is the shorthand term for the Cboe Volatility Index . Sometimes called Wall Street's "fear gauge," the index is a reflection of expected volatility that is priced into the the options market. The index, which traded above 36 in early March, dropped below 19 on Monday. Stocks then pulled back sharply on Tuesday and Wednesday. The VIX ended Wednesday's session at about 22. On the flip side, a VIX near the top of its recent range can be a sign that it is time to buy, Brown said. "Back toward 28, 29, 30, don't stay too bearish. There are buyable stocks at those VIX levels. That's when people get too beared up," Brown said. Brown also pushed back against the argument that the Fed's rate hikes will be damaging for equity investors, saying that it will be good in the long run for more speculative areas of the financial system to be tamed. "The Fed is your friend. They're doing this for a reason. It's not good for the economy, and ultimately for earnings, to let this run wild. The Fed is your friend. The nonsense has to stop," Brown said, pointing to the rise of NFT trading and surging home prices as parts of the financial markets that needed to be calmed down.
Adam Jeffery | CNBC
A common reference for trader sentiment is emerging as a contrarian indicator for when to buy and sell stocks, according to Josh Brown.