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Weekly Sentiment Update: Back to Neutral That Fast?
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 frothy territory. Now, let’s see if anything’s changed now that we’re seeing some signs of deterioration, most notably the relative weakness in the Russell 2000. 1) VIX Spread – Bullish The 3-month VIX spread is at +3.96, 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 66, down from 81 last week. F&G operates on a 1-100 scale, and 66 indicates moderate greed. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 30.0% of individual investors are bullish, which is well below the long-term average of 38.5%. It’s also slightly down from last week, which is a surprise to me. Bullish AAII Sentiment has been below the long-term average for 7 of the past 8 weeks. 4) CBOE Equity Put-Call – Neutral The CBOE Equity-Put Call ratio was at 0.72 yesterday, which is a 2 week high. The 3-day moving average is 0.63. This is basically neutral. 5) ISE Sentiment – Neutral The ISE Sentiment Index is currently at 112 (112 calls for every 100 puts) at yesterday’s close, which is a bullish reading. And the 10-day moving average is 84.1. Even though the 10-day moving average indicates high demand for puts relative to calls, I’ll call this neutral because it’s moved up quite a bit, and for the past year or so, the number seems to be perpetually low. In fact, I may have to boot it from these Weekly Sentiment Updates. Conclusion Out of 5 sentiment indicators, we have 2 bullish, 2 neutral, and 2 bearish. So after two weeks of undeniably bullish readings, traders are back in neutral territory. It’s not exciting… but it’s the truth.
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Continue Reading -->Q&A: Is the Russell 2000 Overbought?
Hi Mike, I’m a subscriber and I mostly follow Scott Redler’s Daily Recaps. I just noticed that wrote about sentiment. Anyway, I only trade TNA and TZA (3X Russell 2000 ETF’s). Don’t you think it’s way overbought? -Rolando The Russell 2000 has come 21% since its pre-election lows, so under the most basic rule of the market — what goes up must come down, eventually — it may be overbought. But let’s take a look at a chart of the Russell 2000 ETF (IWM). The Russell is pretty far above its 200 day moving average. However, prior to the last pop off the February lows, the Russell spent 2 months doing nothing. And now, IWM basically riding the 8 & 21 day moving averages and building a new trading range between $138 and $141. So from a big-picture perspective, the Russell may look a bit overbought — but that may not mean that it’s going to drop. It could very well drop into another low-volatility range which will allow it to work off the overbought condition. I’d watch to see if IWM tests the 50 day moving average, and how it behaves from there.
Continue Reading -->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.
Continue Reading -->Resistance and Support Ahead of Trump’s Big Speech
The Russell 2000 is popping 0.6% today while the major averages are only barely green. On Friday, it nearly tested that descending trendline from which the recent little rally erupted. Has resistance become support? I assume if the Russell can hold this 1380-1400 range, I assume the bears don’t stand much chance of finally breaking the bull. Looking ahead, the next major potential catalyst is President Trump’s address of Congress tomorrow. The big question is how much will he detail will he offer? Trump won the election on sweeping generalities, but there’s a lot of demand on him to get down to brass tacks. Since Trump is a typical CEO (long on broad visions, short on the details that get left to underlings), expectations are extraordinarily low in this regard. However, I would not be so quick to count him out completely. From about August 2016 until the election in November 2017, Trump cut through the competition like a hot chainsaw through butter. He was the hammer for a while… and now he’s the nail. For the past month or so, he’s been hammered relentlessly and is in need of a win. The bar is low. And perhaps by offering even minimal ‘real’ information on tax reform, infrastructure spending, and health care, markets may respond very favorably. Why? Because they’re not expecting much. It’s the equivalent of a company heading into earnings after getting a bunch of downgrades and estimate cuts — it doesn’t take much positive news to start a countertrend rally. There’s also the possibility that Trump offers significant details to confound his critics. And if indeed Trump does deliver, the Russell may really rip.
Continue Reading -->Weekly Sentiment Update: The Broken Permabear Clock Is Finally Right!
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. Neither side provides evidence for their views. So let’s see how traders are feeling after what may have been a change in complexion yesterday. With hot momentum stocks like NVIDIA (NVDA) and Tesla (TSLA) taking beatings, let’s measure the market’s mood for insights on where things may go: 1) VIX Spread – Bullish The VIX is ticking up, but the 3-month VIX spread is at +3.83, 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 75. F&G operates on a 1-100 scale, and 75 is in extreme greed territory. 3) AAII Sentiment – Neutral The latest AAII Sentiment Survey shows that 38.5% of individual investors are bullish, which is right in-line with the long-term average of 38.5%. This is Neutral. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio is at 0.62 with a 3-day moving average of 0.61. This indicates higher-than-average bullishness. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at just 92 (92 calls for every 100 puts) this afternoon – which is a bearish reading. And the 10-day moving average is 81.3. This also indicates bearish sentiment. Conclusion Out of 5 sentiment indicators, we have 3 bullish, 1 neutral, and 1 bearish. Plus, keep in mind that the ISE Sentiment Index seems to always read bearish no matter what’s going on in the market. So that 1 bearish indicator doesn’t count for much. So just as a broken clock is right twice a day, the permabears are now right: traders are indeed very bullish right now. And when bullish sentiment meets stretched technicals, the bears tend to have a better chance at mounting successful attacks.
Continue Reading -->Vintage Wall Street: The Paul Tudor Jones Documentary ‘Trader’
Paul Tudor Jones, founder of Tudor Investment Corporation, is one of the greatest traders of all time. Jones has amassed billions of dollars in assets under management and personal net worth trading everything from futures to currencies to commodities. In the 1987 documentary Trader, PBS takes us inside Jones’ world of high-stakes, practically 24/7 trading. In it, you’ll learn: Why like our own Scott Redler, Paul Tudor Jones wakes up so early in the morning Just how quickly Jones can change his mind in the heat of the moment The awesome-at-the-time-but-horrible-now fashion choices of 80’s Wall Street giants. If you’re interested in learning about Jones’ trading style, we suggest you watch the embedded YouTube video — complete with Russian subtitles — above now. When it does surface online, it tends to disappear due to copyright claims. Interestingly, in the 1990’s, Jones requested it be removed from circulation, possible because it revealed too much about his trading style.
Continue Reading -->Weekly Sentiment Update: That Is a Moderate Bull I See!
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. Neither side provides evidence for their views. So let’s see how traders are feeling into today’s inauguration: 1) VIX Spread – Bullish The 3-month VIX spread is at +3.65, which indicates traders are not very concerned with volatility This is a bullish reading. 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 80. F&G operates on a 1-100 scale, and 80 is in extreme greed territory. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 33.1% of individual investors are bullish, which is below the long-term average of 38.5%. This indicator is slightly bearish. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio is at 0.58 with a 3-day moving average of 0.57. This indicates higher-than-average bullishness. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at just 85 (85 calls for every 100 puts) this afternoon – which is a bearish reading. And the 10-day moving average is 77.3. This also indicates bearish sentiment. Conclusion Out of 5 sentiment indicators, we have 3 bullish and 2 bearish. Interestingly enough, the VIX spread has contracted from 5 to 3.65 over the past week, which implies that options market players are backing off their bullish bets a bit. And the ISE Sentiment Index implies that traders are still buying plenty of downside protection, though to be fair, that indicator seems to be losing predictive value. This could be because of Trump-related uncertainty. So overall, traders appear moderately bullish.
Continue Reading -->Russell 2000 Hits Record Highs, May Be Ready for a Breakout
The Russell 2000 just made a new all-time high, matching last week’s records in the SPX, Dow, and Nasdaq. In doing so, it is above this little 1385-1390 range at which it failed 3 times in a row: We can also view those 3 failures as top points of a descending trendline: I’d keep an eye on it to see if it can keep moving with authority above 1400. Round numbers are meaningless for judging direction but 1400 is just enough above the recent range to judge this extension Yellen’s testimony may be key tomorrow. If she’s hawkish, that could help the Russell bust a power move higher since a strong dollar is generally better for small caps than large caps.
Continue Reading -->Weekly Sentiment Update – Traders Actually Look Bullish!
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. Neither side provides evidence for their views. So let’s see how traders are feeling into today’s inauguration: 1) VIX Spread – Bullish The 3-month VIX spread is at +5, which indicates traders are not concerned with volatility. This is a bullish reading. 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 67. F&G operates on a 1-100 scale, and 67 indicates that traders are moderately bullish. 3) AAII Sentiment – Neutral The latest AAII Sentiment Survey shows that 35.8% of individual investors are bullish, which is below the long-term average of 38.5%. This is basically neutral. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio is at 0.69 with a 3-day moving average of 0.73. This indicates higher-than-average bearishness. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at just 85 (85 calls for every 100 puts) this afternoon – which is a bearish reading. And the 10-day moving average is 79.2. This also indicates bearish sentiment. Conclusion Out of 5 sentiment indicators, we have 2 bullish, 1 neutral, and 2 bearish signs. Now this seems neutral, but I’d argue that traders are actually leaning bullish. Why? Because options-based indicators (notably the ISE Sentiment Index) have become fairly detached from equity markets. Using sentiment as a signal for buys/sells is often a bad idea. And in the case of these options indicators, they seem to be losing value as times go on.
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