The News Is Flowing. Are Traders Happy?
We've got a lot of news flowing.
Apple (AAPL) hit new all-time highs after delivering an incredible fourth-quarter earnings report.
President Trump announced the nomination of Jerome Powell as Fed Chairman.
The October nonfarm payrolls report disappointing.
On a random note… has anyone heard from North Korea lately?
Anyway, with stocks still hovering around all-time highs, let's take a look at our sentiment indicators to figure out what kind of mood the crowd is in.
(click here for a primer on the sentiment indicators below)
1) VIX Spread – Bullish
Last week, the VIX broke its shocking streak of 25 days in a row with an intraday low under 10, and it even went over 13.
But as of Friday morning, it's back down to sub-10 levels around 9.73.
This gives us a 3-month spread of about +4.20, which means traders are very bullish.
(click here for a primer on the VIX spread)
2) CNN Fear & Greed Index – Bullish
The Fear & Greed Index is at 69, which marks modest greediness on the part of investors. It hit multi-year highs at 95 4 weeks ago.
3) AAII Sentiment – Bullish
The latest AAII Sentiment Survey shows that 45.1 of individual investors are bullish, up substantially from 39.6% last week.
This is above the long-term average of 38.5%, so it shows bullishness.
In fact, it's the highest reading since January 5, 2017.
AAII sentiment has been depressed throughout 2017 despite the market hitting a nonstop streak of all-time highs. This seems like a big change.
4) CBOE Equity Put-Call – Bullish
The CBOE Equity-Put Call ratio was at 0.63 on Thursday, below the 0.655 long-term average.
The 10-day moving average is 0.635, which is slightly above the long-term average, indicating higher-than-normal demand for put options.
I would call this very slightly bullish. So it looks like options traders were pretty optimistic heading into Apple's Thursday afternoon earnings report and Friday's nonfarm payrolls numbers.
Conclusion
Out of 4 sentiment indicators, we have:
- 4 bullish (up from 2 last week)
- 0 neutral (down from 1 last week)
- 0 bearish (down from 1 last week)
Make no mistake, the crowd is clearly more bullish than last week. I'd guess that's for two reasons:
1) Tech earnings season has been remarkably strong
2) The market just won't go down
Now, that may have the bears thinking we're in danger of overheating. But keep in mind, no individual sentiment indicator is flashing extreme, full-on nutty bullishness.
The crowd is positive, but it's not irrational.
If we continue to make new highs, I wonder if that AAII sentiment number will spiral even higher as individual investors turn into true believers.
You may be asking yourself “how can the market get to all-time highs without a large crowd of true believers?”
My answer is simple: I think an awful lot of buyers hold their noses while putting their money to work.
They put money to work, but don't necessarily feel great doing so.
In fact, I keep coming back to a Gallup Poll from earlier in the year. It found that just 54% of US adults have participated in the 2009 – 2017 bull market.
From 2001 – 2008, 62% of adults owned stocks.
So we have to balance out bullish sentiment with the fact that many people just got up and left the table altogether. Good luck reconciling those two points…