The Sell-Side Indicator Is 0.3 Points From Sell, the VIX Is Asleep, and FICO's Moat Was Taken by a Pen Stroke

Contents

1. Since 2008: the market has been saying “I dare you to sell”
2. From March 2026: the VIX lies at 16 while the multiple contracts
3. May 2026: FICO’s monopoly was taken away over one summer
4. After June 2026: the un-broadening is back, and the chart may be read backwards
5. Late September to 6 October: the indicator closes in, the cycle clock reaches the top right
6. What to watch next: bank earnings, and one card company
7. ”The indicator is near a sell signal — should I trim?”
8. ”Earnings didn’t deteriorate, so why is the stock cut in half?”
9. “My stocks are down 30% while the index makes highs — am I holding the wrong things?”
10. Worth a look
11. The one thing to take with you

The tiger did not know the beasts were fleeing from him, and took them to be fleeing from the fox.

—— Zhanguo Ce, Chu Strategies I (compiled by Liu Xiang, Western Han; Warring States material), translated by the author

On the What Are Your Thoughts? livestream from The Compound and Friends on 6 October 2026, Josh Brown and Michael Batnick worked through BofA strategist Savita Subramanian’s sell-side indicator, which rose in September and now sits 0.3 percentage points from a sell signal, while the VIX has been flat at 16 since March. Josh added a footnote that appears nowhere in the data: Wall Street strategists do not want to turn bearish, which biases the reading upward. The sharpest segment of the hour was FICO — the best-performing survivor of the 220 S&P 500 names that have held index status since 1990, down about 60% from its high because a housing regulator let a competitor back in, while its own guidance was being raised. These are two hosts talking on one day, and their positions and conclusions can change with the next round of earnings.

Since 2008: the market has been saying “I dare you to sell”

Josh’s phrase for the message of the last eighteen years was blunt: I dare you to sell. Do it. Watch what happens. His evidence is what happened to everyone who turned cautious — cut the target, trim the equity weight, look like an idiot a month later.

What that does to a sentiment indicator matters more than the indicator. The people who set allocations want to keep those jobs, and the penalty is asymmetric: stay bullish and be wrong, everyone was wrong with you; turn bearish and be wrong, you were wrong alone. Josh said he was not mocking the sell-side, because earnings growth carries the heaviest weight in these models, and with Nasdaq earnings growing 36% it is hard to ask a strategist to ignore it.

So the reading on the sell-side indicator carries a layer of career pressure, and that layer does not show up on the chart.

From March 2026: the VIX lies at 16 while the multiple contracts

Michael had said something a few weeks earlier that Josh pulled forward and expanded: there is no fear in this market, and there is plenty of doubt. Fear is measurable — a VIX of 16, no rush into puts, no rush into hedges. Doubt is measurable too, and the measure is the multiple: quarter after quarter of record earnings, upside surprises and raised guidance, and the multiple investors will pay for those earnings keeps shrinking. The index is up 14% on the year; earnings are up more.

Other markets were not asleep over the same stretch. JP Morgan’s FX volatility index is moving, BofA’s MOVE index for bond volatility is moving, the ten-year keeps climbing almost daily (around 5.3%), and equity volatility has been a straight line since March. Jeff deGraaf’s read is that a VIX this immobile feels ominous.

Michael’s counter-question is worth writing down: is the VIX measuring the thing we want to know? The index is dragged along by Apple and Nvidia, both at records, and mathematically those two pacify the VIX. A VIX built only on the other 493 names would look different.

May 2026: FICO’s monopoly was taken away over one summer

I listened to this part twice.

The company is Fair Isaac Corporation, and the phrase everyone uses — my FICO score — takes its name from the ticker symbol, an example Josh could not match anywhere else. He had colleagues pull the numbers: of the 220 stocks that have held S&P 500 membership since 1990, FICO was the single best performer through November 2024. His own guess had been Apple. Even counting this 60% drawdown, its thirty-six-year compound return is 20% a year, tenth on the list.

What it held was a monopoly in the literal sense. Josh’s description: they owned Boardwalk and had four hotels on it. Any credit approval you needed ran through them.

The sequence of the break: operating margins sat in the twenties and thirties for decades, then the company raised the price of a score from about 60 cents toward 10 dollars. Bill Pulte at the Federal Housing Finance Agency said no, and let VantageScore — jointly owned by the three bureaus — back into the mortgage process. That product existed in 2006 and was shut down then, under a rule that amounted to FICO or nothing. Once the rule changed, VantageScore went from 0% to 41% of Rocket’s volume and from 0% to 26% at United, inside a few months after May. Rocket said it tested both and that VantageScore qualified more prospective buyers while saving borrowers an average of 1,600 dollars per loan — real money once you multiply by millions of users.

The reported numbers did not break. On the call the CEO opened by raising fiscal 2026 guidance, with heavy buybacks alongside, everything up and to the right. Josh called the combination unusual: a stock down 60% with the fundamentals showing no deterioration. It is the worst-performing stock in the S&P 500 year to date, Goldman and Wells Fargo have both cut it, and there are securities fraud investigations running into whether management misled investors about regulatory risk.

Then he asked what I thought was the best question of the hour: which other company’s advantage could be erased in two seconds by one official’s pen or one act of Congress? They landed on Apple’s App Store, but that route needs an antitrust case and years, with no single person empowered to order it open. The other example was refiners — no new US refinery since the 1970s, with Valero, Phillips and Marathon holding most of the capacity, and all three among this year’s best performers in energy.

After June 2026: the un-broadening is back, and the chart may be read backwards

Spring into summer was spent celebrating how many stocks were participating. After 1 June it reversed.

The numbers: 29% of the Russell 3000 is in a drawdown of 30% or worse since June; software and services sits at 47%; automobiles and components at 40%. The share of stocks above their 200-day average fell from 75% to 40%, and the share outperforming the index fell from 60% to one in three. Over the same weeks the seven largest weights kept going up and to the right.

I had this filed as a signal to get more cautious, and Michael’s counter stopped me. Duality Research measured every comparable divergence: when technology leads and the rest lags, the laggards have been the ones that caught up. The reverse — the rest strengthening while technology weakens — is the configuration that preceded trouble. The chart is widely read in the opposite direction.

On the constraint at the top end, Michael borrowed the argument from Scale: an elephant cannot grow without limit, because the body has physical constraints. Nvidia at close to 6 trillion dollars is larger than the whole industrials sector, larger than staples and energy combined. His read is that the contracting multiple is talking about scale and its ceiling — every mutual fund is underweight it, with at most a couple of exceptions, because nobody pays an active manager to overweight a 9% index position. What the company can do is buy its own stock with free cash flow: you want to sell it at 21 times, it will take the other side. Josh’s framing is that one company’s cash flow is supporting its own market cap, and that market cap is the foundation under the index.

Late September to 6 October: the indicator closes in, the cycle clock reaches the top right

The sell-side indicator tracks the average recommended equity allocation of sell-side strategists in a balanced fund, read as a contrarian signal. After September’s increase it sits 0.3 percentage points from a sell. Josh drew his own boundary: a break above that line is not something he would read as a hard stop on the bull market; it is one more record of the street getting progressively more bullish, one more arrow for anyone who wants to be contrarian.

The other chart is Renaissance Macro’s market cycle clock, now in the upper right — that combination of growth and inflation with a Fed biased tight. 2018 sat in the same quadrant, and that year produced two double-digit declines in the S&P 500. 1 October 1987 sat in a similar place. They were explicit about not calling for a crash.

Two pillars of the bear case came apart this year. The first was Michael Burry’s November 2025 argument on depreciation: extend the useful life of the assets, suppress depreciation, flatter earnings, while the chips lose value faster than the books assume. a16z’s data shows rental rates on GPUs that are years old have not budged, with the shortage still in place. Josh’s description was that the argument is melting like an ice sculpture. The second was that bond buyers would stop showing up: the Paramount deal drew orders near three times the size of the offering, roughly 150 billion dollars. Josh runs the causality the other way — when the equity is strong, the bond buyers arrive. After Meta launched a new product and the stock ripped 30% in two weeks, the conversation about Meta’s debt stopped.

What to watch next: bank earnings, and one card company

Josh is betting on a VIX spike between October and Thanksgiving, and said upfront he cannot give you a basis for it beyond the cross-asset divergence being unsustainable. He also said where he would be wrong: the financials report, tell us the consumer is gangbusters, no lending losses, no concerns on cards — and he shuts up.

Michael’s test is different: for the market to come down materially, you need something we do not already know. A 5.3% ten-year is known, the inflation level is known, a Fed biased tight is known, and all of that is in the price.

The one warning they both took seriously sits in consumer discretionary. McDonald’s, Home Depot and Pepsi can each be explained away — a weak housing market, high rates making a 3% dividend uncompetitive. American Express getting mauled is the one Michael said he stops on, because it represents the top of the K.

”The indicator is near a sell signal — should I trim?”

I ask myself this every time I see a sentiment reading. The tool this episode gave me is to ask who the respondents are and what it costs them to be wrong. The sell-side indicator measures the recommended weights of people paid to recommend weights, and the cost of turning bearish into a rally is their career, so the reading leans bullish. The indicator still has use, as long as you remember it is measuring the mouths of an incentivised group.

Running the same question through Michael’s test is cleaner: is the thing you are worried about already in the newspaper? If it is, the price has dealt with it. My habit now is to write worries in two columns — one for what everybody is discussing, one for what nobody is — and spend time only on the second.

”Earnings didn’t deteriorate, so why is the stock cut in half?”

FICO is the teaching case. The current numbers held; the source of the pricing power broke. What got repriced is whether it can raise prices from here, and that box never appears on last quarter’s income statement.

What I went and did after listening was rewrite the moat column in my own notes: for each holding, what maintains that advantage — a patent, switching costs, scale, network effects, or a rule. Where it is a rule, the invalidation condition is one person signing something, and the signature does not get announced in advance. The line at the top of this piece is about exactly that: the tiger did not know the beasts were fleeing from him and took them to be fleeing from the fox. Watching everyone use FICO, it is easy to place the power in FICO’s hands, when the power sat in the rule requiring it.

“My stocks are down 30% while the index makes highs — am I holding the wrong things?”

Those three figures — 29%, 47%, 40% — tell you the gap between your experience and the index’s experience has been normal for the past six months.

The split to make next is between two cases: peers down over the same window, which is a group-level structural problem (software and housing this half-year), versus only your name down, which sends you back to the company. Duality’s chart adds a third possibility — the laggards have historically been the group that caught up — so reading “lagging” as “wrong holdings” misfires. The reason to cut should come from that company breaking.

Worth a look

• The What Are Your Thoughts? livestream from The Compound and Friends, 6 October 2026, the source for these notes
• Savita Subramanian’s sell-side indicator research at BofA, cited in the episode; the original has to come from your broker
• FHFA’s public announcements on VantageScore, to check when the mortgage credit-score rule actually changed
• Fair Isaac Corporation’s call transcripts and filings, to check the guidance raise and the pricing history
• Disclosures from Rocket Companies and United Wholesale Mortgage, to check the adoption shares of the two scoring systems
• Public charts from Renaissance Macro and Duality Research, to follow the cycle clock and the breadth divergence from here

The one thing to take with you

The thing that will hurt you is not in any report you can read today.

Michael’s line — for the market to come down materially you need something we do not already know — is about known bad news having been priced. The 5.3% ten-year, the inflation level, a Fed biased tight: you know them, I know them, everyone managing money knows them, and through the months they all rose together the index kept making highs. Meanwhile FICO’s holders, up until May, owned the best performer of thirty-six years.

Here’s a version I’ve tried that works away from money too. Write down the three things worrying you most this month, and next to each one write a sentence answering “who else doesn’t know about this?” Cross off every one where the answer is “everybody knows” — the people who needed to worry have finished worrying. What’s left, the ones nobody is discussing and whose consequences you can still describe concretely, are worth an afternoon of your thinking.

Raw Markdown

This article is an educational discussion of investment method. It is not advice to buy or sell any individual security, offers no target prices, and does not analyze any current holding. Investing carries risk; make your own decisions or consult a qualified professional.