The market is certainly pleased with the first round of the French Presidential Election. Emmanuel Macron scored a victory and is apparently in the driver’s seat to win the May 7 runoff against far-right populist Marine Le Pen. Le Pen supports a vote for a French exit of the election, and assuming Macron wins, a so-called “Frexit” may be off the table. I wouldn’t count Le Pen completely out just yet though. We’re still living in an era with the Brexit, President Trump, and Italy’s ‘No Vote.’ So anything is possible. Today, the SPX is up 1% and within striking range of the 2401 all-time high. XLF is up 2.4%. The euro is up 1.3% against the dollar. The French CAC 40 index is up 3.9%. And the VIX is down a whopping -23%. So why is this happening? Why are we making such a big move? It’s simple: the bears built a big, big fire. And then they fell in it. Last Thursday afternoon, I pointed out that trader sentiment was looking very bearish heading into the weekend election. As you probably now, the permabears have been out in force saying that everyone’s complacent. But the numbers showed otherwise. For example, the American Association of Individual Investors showed that just 25.7% of individual investors are bullish. That’s well below the long-term average of 38.5%. And as of Friday’s close, the 10-day moving average of the CBOE Equity Put-Call Ratio was 0.703, indicating that traders had been stocking up on puts ahead of the weekend. The last time it was that high was February 8, 2017, when SPX closed at 2294.67. The index then hit 2400.98 on March 1. And then, there’s the ISE Sentiment Index, which measures call options demand relative to put option demand using only opening long customer transactions. (market maker and firm trades are excluded) Its daily average has been just 84 this year, or 84 calls bought for every 100 puts. That’s well below long-term average readings. So there was certainly no shortage of bears heading into the weekend. (h/t to Marc Eckelberry for pointing this stat out on the Virtual Trading Floor® (VTF). And when you get a lot of bears bracing for a negative outcome — like a Le Pen victory — that means there’s ample fuel for a rally if the news is positive, or even neutral. The Lesson to Be Learned High stock prices and valuations do not necessarily equate to bullish sentiment. At its root, a bull market happens when there are consistently more optimists (buyers) than (pessimists) sellers. But even with us within 2% of all-time highs, the data shows that there’s still an awful lot of folks that are braced for downside. It doesn’t seem to make a whole lot of sense… but when is anything involved with the market perfectly logical?
Continue Reading -->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. With the US missile attack on Syria and the NFP report miss, now is the perfect time for a sentiment update. Last week, the bears were out in force as we digested near all-time highs. But with the bulls still holding steady, let’s see if anything’s changed. 1) VIX Spread – Neutral The VIX spiked a bit post-Syria, but interestingly enough, it’s now DOWN on the day — even after the NFP miss. That has the 3-month VIX spread is at +2.16 which indicates that traders are starting to grow skittish. Readings around +2 are neutral. 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 43, up slightly from 34 last week. F&G operates on a 1-100 scale, and a reading of 43 means traders are moderately fearful. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 28.3% of individual investors are bullish, down from 30.2% last week. This is well below the long-term average of 38.5%. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.66 yesterday with a 3-day moving average is 0.63. This is indicates that traders are slightly bearish. 5) ISE Sentiment – Neutral The ISE Sentiment Index is at 108 (108 calls bought for every 100). The 10 day moving average is just 90. This indicates that demand for put options continues to outstrip that for calls. However, I’ll actually call this neutral because the ISE Sentiment index has been so down for so long that 90 is actually high relative to recent history. 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. Conclusion Out of 5 sentiment indicators, we have: 0 bullish 3 bearish 2 neutral This shows even more bearishness than last week. Note that the all of these indicators except for the VIX spread, were released BEFORE the attack on Syria and the nonfarm payrolls miss. So it’s not like the market was necessarily braced for good news, even though traders were optimistic about NFP because of the recent ADP and jobless claims beats. It is indeed possible that the next readings of the 4 others may grow more bearish in the near future. And interestingly enough, the SPX just slipped into the green, thoguh small caps and banks are underperforming. It should be an interesting day, to say the least…
Continue Reading -->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, bears started sneaking out of their caves just in time for Spring. And with the bulls continuing to hold steady in the face of doubt, let’s see if anything’s changed. 1) VIX Spread – Bullish The VIX spiked to 15 early Monday, but it’s back down under 12. That has the 3-month VIX spread is at +2.69 which indicates that traders are moderately bullish. 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 34, up slightly from 30 last week. F&G operates on a 1-100 scale, and a reading of 34 means traders are bearish. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 30.2% of individual investors are bullish, down from 35.3% last week. This is well below the long-term average of 38.5%. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.64 yesterday with a 3-day moving average is 0.67. This is indicates that traders are slightly bearish. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at 83 (83 calls bought for every 100). The 10 day moving average is just 90. This indicates that demand for put options continues to outstrip that for calls. However, 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. Conclusion Out of 5 sentiment indicators, we have: 1 bullish 4 bearish 0 neutral This shows even more bearishness than last week. So while the bears are pushing an age-old theme — everyone’s complacent — I’m getting the feeling that traders are waiting for another shoe to drop, even though we’ve seen improvement in the action below the surface. Yesterday, the Nasdaq and Russell showed relative strength, and on Tuesday, we saw great upward action in the banks. So while some of the so-called “Trump Trade” has unwound itself, the bears’ growing isn’t adding up to much. But there’s an important question to ask here: how can sentiment be bearish if the SPX is 2% from all-time highs? We’ve seen this over and over throughout the bull market — markets hovering near record highs, but sentiment reading negative. My guess is that there’s inherent distrust in the market, and traders are eager to turn bearish on even small declines. And those that are buying often appear to be doing so reluctantly. It’s more of a “I might as well buy” attitude than “I’m buying because we’re going straight to SPX 3000.” And that’s a big difference from the last two bull markets.
Continue Reading -->Permbulls 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, sentiment went neutral for the second straight week. The big news this week is today’s healthcare vote (well, let’s hope we get it over with it), so let’s see if traders 1) VIX Spread – Bullish The 3-month VIX spread is at +2.6 which indicates that traders are moderately bullish. However, this number has been sliding steadily as traders slowly price in more volatility. 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 30, down from 53 last week. F&G operates on a 1-100 scale, and a reading of 30 means traders are bearish. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 35.3% of individual investors are bullish, which is just below the long-term average of 38.5%. It’s close enough to the middle to cal 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.67 yesterday with a 3-day moving average is 0.73. This is indicates that traders are bearish. 5) ISE Sentiment – Neutral The ISE Sentiment Index is at 101 (101 calls bought for every 100). So there are a ton of post-Fed call buyers. , which is a bullish reading. The 10 day moving average is just 89.7, up from 83 last week.This indicates strong demand for put options, but the ISE has been extraordinarly low forever, and 89.7 is pretty high compared to recent readings. Conclusion Out of 5 sentiment indicators, we have: 1 bullish 3 bearish 1 neutral So in the past 4 weeks we’ve gone from 2 weeks of bullishness to 2 weeks of neutrality. Markets have been in a slow motion grind lower since the spike high on Trump’s speech, and the sluggishness is impacting traders’ moods.
Continue Reading -->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 fall to neutral territory after two weeks of strong bullishness. (see here and here) So with the Fed out of the way, let’s see if anything’s changed using our 5 primary sentiment indicators: 1) VIX Spread – Bullish The 3-month VIX spread is at +3.01 which indicates that traders are moderately bullish. 2) CNN Fear & Greed Index – Neutral The Fear & Greed Index is at 53, down from 66 last week. F&G operates on a 1-100 scale, and 53 is basically neutral. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 31.2% of individual investors are bullish, which is well below the long-term average of 38.5%. Bullish AAII Sentiment has been below the long-term average for 7 of the past 8 weeks. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.61 yesterday with a 3-day moving average is 0.68. This is slightly bearish. 5) ISE Sentiment – Bullish This is where things get really interesting. The ISE Sentiment Index is at an insane 304 this morning. That means 304 calls purchased for every 100 puts. We very rarely see reading this high, even in a hard rally. So there are a ton of post-Fed call buyers. , which is a bullish reading. The 10 day moving average is just 83, but I’ll call this bullish becasue of today’s extraordinary surge. Conclusion Out of 5 sentiment indicators, we have: -2 bullish -2 bearish -1 neutral So we’re still stuck in neutral territory, though the insane call buying indicated by the ISE Sentiment Index implies that traders are extremely optimistic near-term. With stocks creeping lower intraday, we’re about to see if those call buyers marked the top.
Continue Reading -->1) A ‘Meh’ Jobs Report This morning, the US Bureau of Labor Statistics said that 235,000 nonfarm payrolls were added in February, beating the 200,000 consensus. The unemployment rate was 4.7%, in-line with expectations. However, average hourly earnings grew by just 0.2%, missing the expected 0.3% reading. That drove profit-taking in the US dollar, which has been moving higher in anticipation of a March rate hike. That said, the headline number was still pretty good, and traders are unwavering in their belief that March is in play. The CME’s FedWatch Tool shows that markets are pricing a 91% probability of a rate increase this month. 2) The Big Yawn Market While I was hoping for some volatility on today’s jobs numbers, we didn’t it. Stocks once again traded in a very tight range, with the S&P 500 trading up 0.3%. The Russell 2000 and S&P 500 also made modest gains. Like the US dollar, bank stocks saw profit-taking on the disappointing hourly earnings number. Meanwhile, rate-sensitive groups like gold miners and utilities caught a bid. The brightest spot of the day was biotech, which rallied nicely in the afternoon on speculation that sector leader Gilead (GILD) is about to announce an acquisition. Plus, President Trump is expected to appoint Scott Gottlieb, a doctor with deep ties to the pharma industries, as FDA commissioner. Presumably, he’d create the friendlier regulatory environment that Trump has promised. 3) Neutrality Last week, various sentiment indicators showed that traders were getting very cocky. This week, the picture is quite mixed. The AAII Sentiment Survey showed that individual investors have become much more cautious, even though the major indices barely moved. Click here to read my full Weekly Sentiment Update.
Continue Reading -->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.
Continue Reading -->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 -->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 -->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.
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