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, traders were definitely feeling bearish.
We had an inverted VIX curve, big put option demand, and significant negativity among individual investors.
Now that the S&P 500 is slamming up towards last week’s highs, let’s take a fresh look at the numbers.
1) VIX Spread – Bearish
The VIX is dropping, and the 3-month spread is at +1.0. This shows that traders are moderately bearish.
2) CNN Fear & Greed Index – Bearish
The Fear & Greed Index is at 34, up slightly from 28 last week.
F&G operates on a 1-100 scale, and a reading of 34 means traders are moderately bearish.
3) AAII Sentiment – Bearish
The latest AAII Sentiment Survey shows that 25.7% of individual investors are bullish, down from 29% last week.
This is well below the long-term average of 38.5%.
4) CBOE Equity Put-Call – Neutral
The CBOE Equity-Put Call ratio was at 0.70 yesterday with a 3-day moving average is 0.64. This is indicates that traders are basically neutral. I expect this number to shrink by today’s close.
5) ISE Sentiment – Neutral
The ISE Sentiment Index is at 92 (92 calls bought for every 100 puts). The 10 day moving average is just 84.4. So the recent trend shows higher put option demand.
However, I’ll actually call this neutral because the ISE Sentiment index has been so down for so long, that today’s 92 reading actually counts as pretty neutral activity.
Please note: I am strongly considering dumping ISE Sentiment from this weekly update simply because it’s almost always reading bearish no matter what happens in the market.
I may replace it with the CBOE Skew Index, which measures how much traders are paying for protection against tail risk.
Out of 5 sentiment indicators, we have:
We’re not seeing much change from last week’s sentiment report.
So my market thesis is unchanged too — I think we could be stuck in a range for a while, though I’ll add I see a better chance of a breakout to new all-time highs than a sharp decline.
The current action is reminiscent of last summer, when we consistently had mixed-to-bearish sentiment and stock prices that looked stretched.
The result was a seemingly endless sideways grind, because bearish sentiment and high valuations are a good recipe of a whole lotta nothing.
The bear case remains the same — what goes up must come down.
So the question is whether market volatility has been low enough for a long enough time for a trend change to actually occur.
When that changes, I don’t know.
But the fact that traders are so bearish implies that the snoozefest could go on for quite a while.