Weekly Sentiment Update: Traders Are Surprisingly Bearish


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Permabulls always say everyone's bearish.

And permabears always say everyone's bullish.

Neither side provides evidence for their views.

So I like regularly run through a wide variety of sentiment measures to get an accurate reflection of the market's mood.

According to 7 sentiment measures I track, traders appear to be modestly bearish, even though the S&P 500 is still within a stone's throw of the 2193 all-time high.

1) SPX Options Prices – Bearish

SPX options prices show a high put skew. I looked at 10% out of the money 6 month SPX options. There is currently a 9.8 point skew in implied volatilities on the options. That's the 94th percentile.

So relative to calls, traders are paying more for 10% OTM 6 month puts than they have 94% of the time over the past 5 years.

2) ISE Sentiment – Bearish

The ISE Sentiment Index closed at 81 yesterday (81 puts for every 100 calls). And its 10 day moving average is just 78 — a level that indicates bearishness.

3) AAII Sentiment – Bearish

The latest AAII Sentiment Survey shows that 24.0% of individual investors are bullish, well below the long-term average of 38.4%, and below the 2016 YTD average of 28.1%.

Bearish sentiment is at 37.1%, down a bit from last week, but well above the 30.3% long-term average.

4) Wall Street Strategists – Neutral

The average year-end target price for the S&P 500 is 2169, according to Bloomberg. That implies the market does nothing into year-end.

5) CBOE Equity Put-Call – Neutral

The CBOE Equity-Put Call ratio was 0.66 yesterday, which is just below the YTD average of 0.69. This points to neutral sentiment.

6) CNN Fear & Greed Index – Neutral

The Fear & Greed Index is at 50.

F&G operates on a 1-100 scale, and 50 is neutral perfectly neutral.

7) Investors Intelligence – Bullish

Yesterday, the Investors Intelligence Survey of newsletter writers showed a slightly increase in bullishness to 45.2%, snapping a 4-week losing streak.Those calling for correction are at 31.7%, the highest since June 29.


So we have 3 bearish indicators, 3 neutral indicators, and 1 bullish indicator.

Blend them together and you have a moderately bearish crowd.

I'm hearing a lot of bears say that everyone's complacent… but who are they talking about?

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