Weekly Sentiment Update: Bulls Are on Parade and Froth Is Setting In

Permabulls always say everyone's bearish.

And permabears always say everyone's bullish.

But let's look at the actual numbers to see how the crowd actually feels.

Last week, we saw sentiment climb to undeniably bullish territory.

Now, let's see if anything's changed following the market's HUGE bull move off President Trump's address to Congress.

1) VIX Spread – Bullish

The 3-month VIX spread is at +3.88, which indicates traders are still not concerned with volatility.

This is a bullish reading.

2) CNN Fear & Greed Index – Bullish

The Fear & Greed Index is at 81, up from 75 last week.

F&G operates on a 1-100 scale, and 81 is in extreme greed territory.

3) AAII Sentiment – Neutral

The latest AAII Sentiment Survey shows that 37.9% of individual investors are bullish, which is right in-line with the long-term average of 38.5%. It's also slightly down from last week, which is a surprise to me.

This is Neutral.

4) CBOE Equity Put-Call – Bullish

The CBOE Equity-Put Call ratio is at 0.51, which is near 3-month lows. There is a whiff of panic buying here.

The 3-day moving average of 0.62. This indicates higher-than-average bullishness.

5) ISE Sentiment – Neutral

The ISE Sentiment Index was 119 (92 calls for every 100 puts) at yesterday's close, which is a bullish reading.  And the 10-day moving average is 84.9.

Even though the 10-day moving average indicates higher recent demand for puts, I'll call this neutral because that moving average has moved up quite a bit, and the 119 reading is the highest we've seen since early December.

Conclusion

Out of 5 sentiment indicators, we have 3 bullish, 2 neutral, and 0 bearish.

As I said last week, the ISE Sentiment Index seems to always read bearish no matter what's going on in the market. So that neutral indicator actually doesn't count for much.

So for 2 weeks in a row, traders seem very bullish.

That doesn't necessarily mean we've topped out, but there is some frothiness to the action.

I would get really worried if the VIX spread expanded to 5, because that would mean traders are pricing in basically no volatility at all following a 15% run off the pre-election lows.

For now, I urge you to remember that market trends often go way longer than may seem reasonable.

Many traders try to use sentiment indicators as buy/sell signals, but that is a very dangerous game.

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