All posts by Michael Comeau
Weekly Sentiment Report: Do Traders Fear the Nasty Nasdaq?
Finally, volatility is picking up. The Nasdaq’s big June 9 pop and drop broke the “buy the dip” crowd’s will to some extend, and tech stocks specifically are showing much more movement. And if you’re an active trader, that’s a good thing. It means more opportunities for action on both the long and short side. So let’s take a look at whether the sudden rise in volatility is affecting trader psychology. Last week’s sentiment report showed a spike in fear. And as you can see in the chart below, the VIX has started stair-stepping higher: So let’s take a look out our 5 sentiment indicators to see just how bearish traders are after yesterday’s volatility spike. (click here for a primer on the 5 sentiment indicators below) 1) VIX Spread – Bullish We saw wild action in the VIX last week, with the curve actually inverting before reinflating back to very bullish levels. The VIX is at 12 with a 3-month spread of +2.8. This is down from last week’s +3.75 level, but it still indicates bullishness. 2) CNN Fear & Greed Index – Neutral The Fear & Greed Index is at 44, down from 53 last week.. F&G operates on a 1-100 scale, and a reading of 44 is close enough to the middle to be considered neutral. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that just 29.6% of individual investors are bullish, down slightly from 29.7% last week. This 29.6% reading is well below the 38.5% long-term average, and indicates that individual investors still don’t trusth the market. This has been the trend all year, even when the SPX was hitting record highs with basically no volatility. On a related note, three weeks ago, I compared 2017 AAII numbers to those back at the 2007 market top. Individual investors were insanely bullish in October 2007. Banks had been weak, but overall, investors were not the least bit worried about the deteriorating housing market. 2017 has been a different story altogether. Even if individual investors are buying in, they’re doing so begrudgingly. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio was at 0.65 yesterday, which is a neutral reading. The 3-day moving average is 0.60, which is below the long-term average. These numbers indicate that traders are modestly bullish. 5) ISE Sentiment – Neutral The ISE Sentiment Index is at 86 (86 calls bought for every 100 puts. The 10 day moving average is 96.4 (96.4 calls for every 100 puts). This indicates that traders are neutral. However, I’m considering removing this indicator from the Weekly Sentiment Report because it so rarely turns bullish, no matter what the market’s doing. Conclusion Out of 5 sentiment indicators, we have: 2 bullish (up from 1 last week) 2 neutral (up from 1) 1 bearish (down from 3) So Nasdaq volatility is picking up… and fear isn’t. Last week, 3 of our 5 indicators were bearish. Today, just 1 is bearish. But if we pull back to a longer time frame, it’s obvious that sentiment is nowhere near as bullish as it was at the last market top back in 2007. That’s a bit odd. As I’ve written again and again, we’ve seen very little volatility this year, at least up until the last month. You’d think with a market going straight up all year, there’d be widespread optimism. But there just isn’t.
Continue Reading -->Weekly Sentiment Report: Fear Is Here!
Last week, I asked if the bulls went too far. Options traders were buying call options like crazy, betting on a big pop into quarter-end. Turns out, the only thing that popped was the VIX, which rose 56% intraday yesterday, its 5th largest range ever. Take a look at this chart: So let’s take a look out our 5 sentiment indicators to see just how bearish traders are after yesterday’s volatility spike. (click here for a primer on the 5 sentiment indicators below) 1) VIX Spread – Bullish This VIX rose so fast yesterday that the curve actually inverted for a short period, indicating extreme fear. But less than 24 hours later, the VIX is around 11ish and the 3-month spread has reinflated back to +2.75. So everyone that bought puts yesterday to bet on a further decline today is getting spanked. 2) CNN Fear & Greed Index – Neutral The Fear & Greed Index is at 53, flat from last week. F&G operates on a 1-100 scale, and a reading of 53 is right smack in the middle. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that just 29.7% of individual investors are bullish, dowm from 32.7% last week. This 29.7% reading is well below the 38.5% long-term average, and indicates that individual investors are fearful. Throughout this year, individual investors have tended to not trust the market, and this latest reading indicates that nothing’s changed. On a related note, two weeks ago, I compared 2017 AAII numbers to those back at the 2007 market top. Individual investors were downright loony in October 2007, not the least bit worried about the deteriorating housing market. They’ve been much more skittish in 2017 even though we’ve had almost no volatility this year. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.69 yesterday, which is a bearish reading. The 3-day moving average is 0.66, which is slightly above the long-term average. These numbers indicate that traders are modestly bearish. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at 90 (90 calls bought for every 100 puts. The 10 day moving average is just 81.5 (81.5 calls for every 100 puts) This indicates that traders are bearish. Conclusion Out of 5 sentiment indicators, we have: 1 bullish (down from 2) 1 neutral (down from 2) 3 bearish (up from 1) Clearly, traders are more bearish than last week. So we’re seeing the same old trend — every time the market hits the rocks, traders get real real bearish real real fast. I know it’s trendy to say that everyone’s bullish, but that’s just plain wrong. If you want to see what real bullish sentiment looks like, go back to 2007. As I noted earlier, we’ve seen very little volatility this year. So the fear isn’t coming from troubling price action. The problem seems to be two-fold: 1) People are fixated on Washington DC headlines and assume that political volatility will lead to a down market 2) The bull market’s gone on for so long that people assume it just has to hit the wall — what goes up must come down The bears will be right eventually, but who knows when? Jeff Cooper is making a very good case for further downside, so I suggest you read his latest piece: These Rallies Were Made for Selling
Continue Reading -->Weekly Sentiment Report: Did the Bulls Just Go Too Far?
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 a rapid increase in bearishness. The moment the Nasdaq started looking shaky, traders started scooping up put options in advance of a larger fall. But in keeping with the big 2017 trend — that every dip turns out to be buyable — the market steadied itself, largely on the back of a big bounce in biotech this week. So with the Nasdaq crawling out of its hole, let’s take a fresh look at our 5 sentiment indicators. (click here for a primer on the 5 sentiment indicators below) 1) VIX Spread – Bullish The VIX has dropped a bit to 10.10, which keeps it within range of generational lows. The 3-month curve is at +3.63, which indicates traders are moderarely bullish. This is roughly the same as last week. 2) CNN Fear & Greed Index – Neutral The Fear & Greed Index is at 53, up just a bit from 52 last week. F&G operates on a 1-100 scale, and a reading of 53 is neutral. 3) AAII Sentiment – Neutral The latest AAII Sentiment Survey shows that 32.7% of individual investors are bullish, up slightly from last week. This 32.7% 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 indicates nothing’s changed. On a related note, earlier this week, I compared 2017 AAII numbers to those back at the 2007 market top. Individual investors were downright loony in October 2007, not the least bit worried about the deteriorating housing market. Today, they’re much more skittish. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio was at 0.50 yesterday. As Marc Eckelberry posted earlier, this is a 6-month low. The 3-day moving average is just 0.60. These numbers are below historical norms and indicates that traders are bullish. This is a big turnaround from last week. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at 100, indicating equal demand for calls and puts. However, the 10 day moving average is just 74.2 (74 calls for every 100 puts) This indicates that traders are bearish. Conclusion Out of 5 sentiment indicators, we have: 2 bullish (up from 1) 2 neutral (unchanged) 1 bearish (down from 2) Clearly, traders are more bullish than last week. They’re not “all in” but the mood has gotten much happier. In particular, it seems that options traders are betting on a big pop into quarter-end. That rock-bottom 0.5 reading in the CBOE equity put-call is a sign of complacency — though that’s not confirmed by the other indicators. If the 3-month VIX spread was near +5, I’d actually advocate shorting, or going long something like VXX. That would mean traders saw almost no risk ahead, essentially setting themselves up for a fall. Near-term, I’d watch to see if biotech can continue powering higher. If IBB can keep on trucking into the stratosphere, maybe the bulls will finally take things too far.
Continue Reading -->Are Traders More Bearish Today Than in 2007?
Quick Summary It’s trendy to say that everyone’s bullish. But the evidence shows that many investors don’t trust the market. A lot of investors left the market altogether! ******** Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. That’s how I open T3 Live’s Weekly Sentiment Reports. And it’s very rare that the “permas” back up their opinions with real data. So I do my best to supply you with numbers that can help us figure out how the crowd’s actually feeling. Obviously, traders want to know if this is the year the market tops out. So they’ll look for parallels to 2007, when the market peaked ahead of the financial crisis. I’m obsessed with sentiment data, so we’re going to take a deep dive into the numbers to figure out: How bullish traders were at the 2007 SPX top, and how that compares to the present Major warning signs ahead of the 2007 market peak, and whether we’re seeing them again today Background on 2007 Before the financial crisis hit, the SPX hit a record high of 1576.09 on October 11, 2007. That put the index was up 11% on the year, excluding dividends. Now, people had been debating the health of housing for years. Former Fed chairs Ben Bernanke and Alan Greenspan weren’t worried about a bubble. But Forbes Magazine actually asked the question ‘What If Housing Crashed?’ back in 2001. And in 2005, Berkshire Hathaway’s Warren Buffett and Charles Munger warned about some areas of housing getting bubbly. How Did Traders Feel in 2007? Traders were very complacent at the October 2007 top. The housing bubble was a subject of constant debate by then, but individual investors as a whole weren’t concerned. They thought we could survive the storm. On October 11, 2007, the American Association of Individual Investors survey indicated that 54.6% of investors were bullish — well above the long-term 38.3% average. That was the highest level since January 17, 2007. The 8-week moving average (a good estimate of the trend) was 44.4%. The average year-to-date at that point was 42.4%. Now let’s see how that compares to readings from last week, just ahead of Monday’s new all-time highs in the SPX and Nasdaq. Last week, just 32.3% of investors were bullish, with an 8-week moving average of just 32.5%. Year-to-date in 2017, the average is just 33.6%. So by this measure, individual investors are not nearly as bullish as they were in 2007. Here’s a chart so you can see the difference between 2007 and today: Clearly, individual investors are nowhere near as confident as they were in 2007. What About Options Traders? I then took a look at the CBOE equity put-call ratio. The long-term average of 0.655 hasn’t changed much since October 1, 2006, which is when my data set begins. So this is a very stable indicator to use. Around the October 11, 2017, however, there was a bit of a lull. On October 15, the 10-day moving average fell to just 0.568, a 3-month low. In 2017, we have not had a single 10-day moving average that low. The last such reading was on December 19, 2016. This isn’t as clear-cut a comparison as the AAII example, but it points to less complacency today. The Gallup Poll A recent Gallup poll showed that just 54% of US adults have owned stocks during the 2009-2017 bull market. But from 2001 – 2008, 62% of adults owned stocks. In fact, the only group of Americans that have maintained stock ownership has been those earning over $100,000 per year. Many of the masses have left. Conclusion It’s trendy to say that everyone’s bullish. But the evidence shows that many investors don’t trust the market. In fact, the Gallup data indicates that a lot of folks just got up from the table altogether. This is good news for the bulls. Why? Because tops tend to happen when everyone’s in. This bull may have some more room to run…
Continue Reading -->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.
Continue Reading -->Weekly Sentiment Report: With Record Highs All Around, Are the Bulls Out of Control?
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 definitely saw a bull party starting, with the VIX dropping back towards the 9.56 generational low set from May 9. And after I wrote that, the VIX made an even lower low at 9.37 while the SPX, Nasdaq, Russell, and Dow all hit record highs. The VIX hasn’t been so low since December 1993. While I always love talking sentiment, this latest market pop makes now the perfect time for an update on the market’s mood, especially since we justed passed this week’s big news trifecta — Comey’s testimony, the UK election, and the ECB Meeting. (click here for a primer on the 5 sentiment indicators below) 1) VIX Spread – Bullish Obviously, the VIX is pretty much as low as it gets. The 3-month curve is at +4.93, which means traders are extremely bullish. Readings near 5 are most definitely in froth territory. 2) CNN Fear & Greed Index – Neutral The Fear & Greed Index is at 59, up from 56 last week. F&G operates on a 1-100 scale, and a reading of 59 is neutral. 3) AAII Sentiment – Neutral The latest AAII Sentiment Survey shows that 35.4% of individual investors are bullish, up from 32.9% last week. This 32.9% reading is below the 38.5% long-term average, and indicates that individual investors are basically neutral. The 8-week moving average for bullishness is just 31.7%. At the start of the year, that 8-week moving average was 45.6%. So even though the markets have been going straight up, individual investors have grown less and less trusting. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio was at 0.55 yesterday with a 3-day moving average of 0.57. These numbers are under historical norms, indicating that traders are heavily leaning towards call options. This indicates high bullishness. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at 77 this morning (77 calls bought for every 100 puts). The 10 day moving average is 83.7. The ISE has been steadily declining for the past couple of weeks — a bit of a surprise given the market’s stability. Conclusion Out of 5 sentiment indicators, we have: 2 bullish 2 neutral 1 bearish These numbers are unchanged from last week. However, we are definitely approaching frothy territory, based upon the huge collapse in the VIX and the drop in the CBOE equity put-call ratio. The doomsday crowd has been consistently saying the crowd is too bullish — even though they never have numbers to back those views up. That said, they’re close to being right. The AAII sentiment number indicates that individual investors haven’t quite bought into the bull case, even though volatility has disappeared as the market keeps grinding up. Next, I want to repeat some data I posted last week: A recent Gallup poll showed that just 54% of US adults have participated in the 2009-2017 bull market. From 2001 – 2008, 62% of adults owned stocks. Before the financial crisis, as many as 65% adults owned stock. That means a huge number of people have missed out on a 267% move in the stock market. On Thursday, Scott Redler talked about the biggest risk of all — the risk of missing out on wealth creation via smart long-term investing. And it’s crazy that even now, with the market more than tripling and going straight up since the election, there are still a lot of folks that don’t believe. Scott set a target of 2470 by June 30, and that scenario looks more and more likely. Now if that AAII sentiment number was at 45%, I’d probably be looking at SPY puts or VIX calls. But for now, it looks like the bulls still have the ball.
Continue Reading -->5 Fast Facts About the Boring S&P 500
2017’s been a nutty year. It’s been a remarkably sleepy year, with the S&P 500 grinding up at a snail’s pace despite growing geopolitical tensions, stretched valuations, and an endless flurry of headlines out of Washington courtsey of President Trump. So I dumped 9,438 trading days worth of data — going back to January 3, 1980 — to give you a numbers-based breakdown of just how weird 2017 is. 1) 1% Days The S&P 500 has moved 1% or more in a day only 4 times in 2017. In 2016, we had 4 daily 1% moves by January 8! And before 2017, the market had 1% daily moves on average 63 times a year! 2) Up Days and Down Days In 2017, 54.7% of all trading days have been up days. While it’s felt like the market only goes up a little bit every day, this is only slightly above the pre-2017 average of 53.1%. 3) Intraday Volatility I calculate a day’s trading range with the following formula: High minus low, divided by the prior day’s close. So if the S&P had a 20-point difference between its high and low, and the prior day’s close was 2000, the range would be 1%. The average daily range in 2017 has been 0.6%. This is less than half the pre-2017 average of 1.3%. That means intraday movement is running at less than half the long-term average. 4) Average Daily Move On average, the S&P has moved only 0.3% per day in 2016. This is dramatically lower than the pre-2017 average of 0.8%. So if you’re falling asleep watching the major averages, you’re not alone. I write about the major averages every day, and my daily mission is now “find an interesting way to say nothing happened!” 5) Finishes Near the Highs of the Day For my final piece of analysis, I wanted to see if the S&P 500 has tended to finish closer to the highs of the day. So I looked for days where the S&P 500 finished in the top 1/3 of the daily range. (the high minus the low). We have had 106 trading days through Monday, and the S&P 500 finished in the top 1/3 of the range 54 times. That’s 51%. Pre-2017, the S&P finished in the top third of its range just 42% of the time. ******** The takeaways are simple: 1) The S&P 500 is not moving intraday 2) The S&P 500 is not moving day-to-day 3) Judging by the trend for us to finish near the highs, it doesn’t seem to pay to short the market intraday. 4) If you’re looking for action, focus on hot momentum stocks… not the indices and related ETF’s!
Continue Reading -->The Sub-10 VIX Is About to Set a Crazy Record
Min Zeng of the Wall Street Journal just Tweeted a very interesting stat about the VIX: $VIX at 9.75, on pace to close under 10 for the seventh time this year–the most ever. I double-checked the data and indeed, Zeng is correct. But taking a deeper look at the data (my data set goes back to 1990), things get even more bizarre. All 6 of 2017’s sub-10 closes in the VIX happened on May 8 or later. (remember, today’s would make lucky number 7) And if get another sub-10 close, that would mark 5 in the past 7 sessions. Since 1990, the VIX has NEVER closed below 10 in 5 out of 7 sessions. So it’s on the verge of a truly incredible record. Already, the VIX has finished under 10 in 4 of the last 6 sessions. This has only happened 3 other times since 1990. Those 3 other occurences were on 12/28, 12/29, and 12/30 in 1993, during a streak when the VIX had 4 straight closes below 10. So the post-election collapse in volatility truly is remarkable. Now let’s take things a step further. Prior to May 8, 2017, there were only 9 sub-10 closes in the VIX. That’s right. Just 9 out of 6,891 trading days — or 0.13% of the time. And now we’re going on 5 in just 7 days — or 71%! This looks insane, but let me explain why it’s perfectly logical. The VIX represents expected volatility. And when actual market volatility goes to near-zero — as it has since President Trump’s victory — the VIX follows. Therefore, the VIX’ behavior is entirely logical. Anecdotally, I’ve been hearing a lot of traders chat up long positions in VIX-related instruments like VIX calls or VXX calls, or plain old SPY/SPX options. I’ll just leave you with one of the great all-time market one-liners: “The market can stay irrational longer than you can stay solvent.” -John Maynard Keynes 2017 has been BRUTAL to traders betting on a rebound in volatility. You can know why it should happen, but you had better know when, or else you’ll be eaten alive by time decay, one penny at a time. So if you’re going to put your chips down… be very careful.
Continue Reading -->Weekly Sentiment Update: The F.O.M.O. Train Is Unstoppable… for Now
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 traders show less more fear after the SPX broke to new all-time highs. And the question I asked was whether we were set for a F.O.M.O.-driven ride up to SPX 2500. With markets still clawing higher, it looks like the answer is yes. So let’s take a fresh look at our 5 primary sentiment indicators to see if the ride towards 2500 has made the bulls overconfident. (click here for a primer on them) 1) VIX Spread – Bullish The VIX dropped as low as 9.65 Friday, putting it within range of the the 9.56 generational low on May 9. A couple of weeks ago, the VIX curve nearly inverted, but the 3-month curve is at +3.7, indicating traders are not pricing in much near-term volatility. Or in plain English, folks are bullish. 2) CNN Fear & Greed Index – Neutral The Fear & Greed Index is at 59, up from 56 last week. F&G operates on a 1-100 scale, and a reading of 59 is pretty much neutral. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 26.9% of individual investors are bullish. This 26.9% reading is well below the 38.5% long-term average, and implies that individual investors do not trust this bull move. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio was at 0.66 yesterday with a 3-day moving average of 0.66. This is above historical averages. 5) ISE Sentiment – Neutral The ISE Sentiment Index was at 84 Friday afternoon (84 calls bought for every 100 puts). The 10 day moving average is 89.3. These numbers show higher put demand, but they’re actually in-line with recent averages, so I’ll also lump it in as neutral again. Conclusion Out of 5 sentiment indicators, we have: 2 bullish 2 neutral 1 bearish So these numbers are unchanged from last week. The question to ask is whether we’re on the verge of outright forth. Last week, I said no. This week… I’m saying maybe. The AAII Sentiment Survey indicates that individual investors are pretty skittish. Typically, at tops, you see the masses wanting to get in. One possibility is that the tense geopolitical climate is preventing investors from getting too bullish, even though volatility has gone to basically nothing since the election. And the CBOE equity-put call doesn’t show rampant demand for call options, another thing we typically see at market tops. Therefore, I think there’s a reasonable chance we charge past SPX 2500 in the next couple of weeks as shorts throw the towel in, unable to withstand the bulls’ painfully slow push higher. And at that point, perhaps crossing a major round number like 2500 really gets the bulls overconfident, setting the stage for a drop. But for now, let the relentless post-election bid teach you an important lesson: the trend is your friend. And it can be your friend for a lot longer than may seem reasonable. So if you want to bet against it, have a really good reason. I’ll end with a tip: if you’re reason is “what goes up must come down,” go back to the drawing board!
Continue Reading -->Weekly Sentiment Update: Can We Ride a F.O.M.O. Wave to SPX 2500+?
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 swung to a moderately bearish stance. But yesterday, the SPX blasted up to a new record high of 2418.71, so let’s see just how quickly sentiment is turning. (click here for a primer on these 5 sentiment indicators) 1) VIX Spread – Bullish Last Thursday, the VIX spiked up to 16.30, but it’s collapsed back down to 9.83, butting it within range of the the 9.56 generational low on May 9. Last week, the VIX curve nearly inverted, but the 3-month curve is at +4.0, indicating traders not pricing in much near-term volatility. Or in plain English, folks are bullish. 2) CNN Fear & Greed Index – Neutral The Fear & Greed Index is at 56, up from 45 last week. F&G operates on a 1-100 scale, and a reading of 56 is neutral. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 32.9% of individual investors are bullish, up from 23.9% last week. This 32.9% reading is below the 38.5% long-term average, and indicates that individual investors are not particulary trusting of the market. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio was at 0.59 yesterday with a 3-day moving average of 60.3. These numbers are under historical norms, indicating that traders are not buying many put options. Therefore, they are bullish. 5) ISE Sentiment – Neutral The ISE Sentiment Index is at 92 this morning (92 calls bought for every 100 puts). The 10 day moving average is 92.3. These numbers show higher put demand, but they’re actually in-line with recent averages, so I’ll also lump it in as neutral again. Conclusion Out of 5 sentiment indicators, we have: 2 bullish (+2 from last week) 2 neutral (-1 from last week) 1 bearish (-1 from last week) The numbers indicate that we’re seeing much less fear than last week. So the important question to ask is whether we’re on the verge of outright forth. I’m going to guess no. The AAII Sentiment Survey indicates that individual investors are pretty skittish. Typically, at tops, you see the masses wanting to get in. On a related note, a recent Gallup poll showed that just 54% of US adults have participated in the 2009-2017 bull market. From 2001 – 2008, 62% of adults owned stocks. On a second related note, have you noticed the sudden BitCoin craze? Crypocurrencies are going up 5% or 10% a day, which looks like the 1999 dot-com boom all over again. If there’s froth, it’s in BitCoin, not stocks! (not that BitCoin can’t double or triple from here…) Looking forward, I’m wondering if the bears are destined to capitulate on a sudden wave of F.O.M.O. (fear of missing out), driving up SPX to 2500+ in a blowout move.
Continue Reading -->