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If Loving This Market Is Wrong, the Bulls Don’t Wanna Be Right


It's been quite a week, with the SPX, Dow Jones Industrial Average, Nasdaq Composite, Nasdaq 100, and Russell 2000 all making new all-time highs, leaving the bears crying on the floors.

Now, sentiment was certainly bullish last week.

But have the bulls gone completely insane after Thursday's run up to SPX 2552.51?

Let's take a look at our 4 sentiment indicators to see how traders are feeling.

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

1) VIX Spread – Bullish

Since October 6, 2014, when the CBOE changed the VIX calculation methodology, we've had a total of 53 days with a VIX low under 10.

52 of them have happened since April. And with today's 9.11 print, 15 of them have happened in the last 15 days.

So the VIX is still breaking new ground… underground, that is.

Meanwhile, the 3-month spread is at +5.2, which means traders are extraordanarily bullish.

(click here for a primer on the VIX spread)

2) CNN Fear & Greed Index – Bullish

The Fear & Greed Index is at 95, marking a multi-year high.

The F&G Index operates on a 1-100 scale, and a reading of 95 qualifies as extremely greedy.

So again, we're seeing extraordinary bullishness.

3) AAII Sentiment – Neutral

The latest AAII Sentiment Survey shows that 35.6% of individual investors are bullish, up slightly from 33.6% last week.

I'm really surprised this indicator hasn't moved much as the market has soared in the past couple of weeks.

However, this reading has been pretty depressed all year, so maybe we shouldn't be surprised.

4) CBOE Equity Put-Call – Bullish

The CBOE Equity-Put Call ratio was a 0.69 on Thursday, which is above average of 0.655. This indicates some skittishness ahead of the Friday jobs report.

The 10-day moving average is 0.636, which is slightly below the long-term average, indicating higher-than-normal demand for call options.

I would call this moderately bullish, with a little less enthusiasm than last week.

If we see more rock-bottom readings, that could be a sign of true complacency.


Out of 4 sentiment indicators, we have:

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

We have 3 bullish, 1 neutral, and 0 bearish indicators this week.

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.

In particular, we're in a whole new era for the VIX. No one knows how long this new era can go on. We've seen the VIX go through multi-year declines before, and who knows how long this one can go on?

The lows in volatility feel like the highs in the Nasdaq in 1998-2000 or the housing highs last decade.

I do suspect upside from here is limited, and I'm tempted to get long volatility via VIX calls or a similar instrument. But I admit — I'm having an awfully hard time making the decision.

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