Weekly Sentiment Report: The Bears Are Out of the Cave
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.
On the morning of June 9, traders were looking very, very bullish.
The VIX made a new generational low at 9.37 while the SPX, Nasdaq, Russell 2000, and Dow hit record highs.
And then Apple (AAPL) and Nvidia (NVDA) fell from the sky, kicking off a deep dive in the Nasdaq.
The VIX hit an intraday high of 12.11 — a 29% move off that 9.37 low.
With the Nasdaq clearly under pressure and some traders talking about a change in complexion, now's a great time to see how bullish traders are.
(click here for a primer on the 5 sentiment indicators below)
1) VIX Spread – Bullish
The VIX has perked up a bit to 10.64 this morning, though that's still low by historical norms.
The 3-month curve is at +3.57, which indicates traders are moderately bullish.
Last Friday, it was at +4.93, was definitely in frothy territory.
2) CNN Fear & Greed Index – Neutral
The Fear & Greed Index is at 52, down from 56 last week.
F&G operates on a 1-100 scale, and a reading of 52 is as neutral as it gets.
3) AAII Sentiment – Neutral
The latest AAII Sentiment Survey shows that 32.3% of individual investors are bullish, down from from 35.4% last week.
This 32.3% reading is below the 38.5% long-term average, and indicates that individual investors are basically neutral.
Throughout this year, individual investors have tended to not trust the market that much, and this number indicates that nothing's changed.
Even last week, with all 4 major indices making new highs, this number was still in neutral territory.
4) CBOE Equity Put-Call – Bearish
The CBOE Equity-Put Call ratio was at 0.80 yesterday with a 3-day moving average of 0.70.
These numbers are above historical norms and indicates that traders are bearish.
That 0.80 reading is the highest level since April 13, when the US dropped a 22,000 pound bomb on ISIS forces in Afghanistan.
So needless to say, traders have been buying plenty of downside protection.
5) ISE Sentiment – Bearish
The ISE Sentiment Index is at 63 as of the Thursday close (63 calls bought for every 100 puts). The 10 day moving average is 77.6.
This indicates that traders are bearish.
Conclusion
Out of 5 sentiment indicators, we have:
- 1 bullish (down from 2 last week)
- 2 neutral (unchanged)
- 2 bearish (up from 1)
This week's shakeout has been pretty minor.
SPX is less than 14 points off its all-time high, and the Nasdaq isn't doing all that much worse.
The Russell 2000 is also hanging in decently enough.
That said, traders cleary show more fear than last week.
That's perhaps best exemplified by the jump in the CBOE equity put-call ratio and the ISE Sentiment Index, both of which point to elevated demand for put options.
So the second trouble started hitting, traders started bracing for even more downside.
I would also assume that plenty of traders started shorting stocks.
The rapid buying of downside protection on any hint of trouble has been a major theme since the election, and I suspect it's having a dampening effect on volatility.
It's easier for the market to fall when sentiment is positive, because few people are ready for trouble.
But when everyone's looking for trouble… it's hard to find.
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