Sentiment Report: Traders Are Extra Bullish for the Holidays


Traders are squarely focused on the progress of the GOP tax bill.

And judging by the market action on Friday, it certainly looks like they're feeling that it's going to pass soon:

  • The S&P 500Nasdaq Composite, and Dow Jones Industrial Average all hit fresh all-time highs
  • The Russell 2000 is outperforming by a big margin
  • The US dollar is rallying
  • Bank stocks are rocking hard
  • Gold slipped into the red.

But with two weeks to go in 2017, just how bullish are traders on equities after a year of nonstop opportunities to buy the dip?

Let's take a look at our 4 primary sentiment indicators to see if traders are going gaga for stocks.

(click here for a primer on the sentiment indicators below)

1) VIX Spread – Bullish

Late Friday morning, the VIX was as low as 9.51, which is very low based on historical norms.

This gives us a 3-month spread at 4.18 indicating that traders are very bullish, and expect almost no volatility heading into year-end.

(click here for a primer on the VIX spread)

2) CNN Fear & Greed Index – Bullish

The Fear & Greed Index is at 68.

This index operates on a 0-100 scale, and a reading of 68 is basically moderately bullish.

3) AAII Sentiment – Bullish

The latest AAII Sentiment Survey shows that 45.0% of individual investors are bullish. This is the fourth highest reading of 2017, and a huge jump from last week's 36.9% reading.

It's also well above the year-to-date average of 34.5% and the 38.5% long-term average.

The long-term average is 38.5%, so a reading of 45.0% is basically fairly positive.

4) CBOE Equity Put-Call – Bullish

The CBOE Equity-Put Call ratio's latest reading is 0.560. This is below the 0.655 long-term average.

The 10-day moving average is 0.592, which is very low on a historical basis.

And the 3-day moving average, which I use to measure very short-term bullishness, is 0.560 — again very low.

These numbers point to serious bullishness among options investors, who seem to expect more all-time highs into the new year.


Out of 4 sentiment indicators, we have:

  • 4 neutral (up from 3 last week)
  • 0 neutral  (down from 1 last week)
  • 0 bearish (flat from last we)

On October 6, I made the following melodramatic declaration:

Let's not mince words: the bulls are clearly insane. They think they're destined to ride into the sunset on a magic carpet made of cold hard cash.

I can see both sides of the coin here.

The bulls may be insane… but they may also be right.

Timing market turns based on sentiment indicators is awfully tricky.

And remember, the trend can go on a lot longer than may seem reasonable.

We're seeing similar conditions right now.

Stock market sentiment is about as bullish as it gets.

So I'll repeat what I just said: the trend can go on a lot longer than may seem reasonable.

The market's higher than it was on October 6, when many permabears were calling tops because sentiment was out of control.

Could the market fall from here?

Or course!

But timing trades off sentiment is near-impossible.

We very well could see a melt-up into year-end, so look both ways before crossing this bull!

Leave a Comment: