Sentiment Report: Traders Still Happy with the Low Vol Grind
In last week's sentiment report, I said “volatility is finally picking up!”
And then it collapsed all over again as the post-election bull market raged on, with all major indices including the Russell 2000 breaking to new all-time highs.
The VIX fell back under 10, and the bears are once again asking “is this low-volatility grind ever going to end?
Traders were in a pretty decent mood before Thanksgiving, and they're looking happier Friday morning with futures bid higher.
So let's take a fresh look at our sentiment indicators to see how traders are feeling on today's Black Friday “holiday.”
(click here for a primer on the sentiment indicators below)
1) VIX Spread – Bullish
Last Wednesday, the VIX hit a 3-month high at 14.51.
It's around 9.85 Friday morning.. That's extremely low by historical standards, but it's become the new normal… at least since the summer.
This gives us a 3-month spread of about +3.95, which means traders are very bullish.
(click here for a primer on the VIX spread)
2) CNN Fear & Greed Index – Neutral
The Fear & Greed Index is at 54, up slightly from 50 last week.
This index operates on a 0-100 scale, so a reading of 54 is neutral.
Before last Thursday's big reversal higher, it was actually at 35.
On October 6, it hit multi-year highs at 95, so it's obviously come back down to earth.
Funny — a lot of folks thought that 95 reading meant we were peaking.
But markets kept pushing higher, showing how difficult it is to time tops and bottoms with sentiment indicators.
3) AAII Sentiment – Neutral
The latest AAII Sentiment Survey shows that 35.5% of individual investors are bullish. This is up from last week's 29.3% reading, but it's still way off the 45.1% level from two weeks ago, which itself was the highest since since January 5, 2017.
The long-term average is 38.5%, so a reading of 35.5% is basically neutral.
4) CBOE Equity Put-Call – Bullish
The CBOE Equity-Put Call ratio was at 0.57 on Thursday, which is well below the 0.655 long-term average.
The 10-day moving average is 0.629, which is below the long-term average.
Both point to bullishness.
Conclusion
Out of 4 sentiment indicators, we have:
- 2 bullish (up from 1 last week)
- 2 neutral (flat)
- 0 bearish (down from 1 last week)
The permabears are still saying that everone's all-in bullish and 100% complacent… but the numbers point to moderate bullishness.
If you want to see full-on 100% bullish insanity, go back to October 6 when I declared the following:
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.
Of course, I hedged myself by adding that “the bulls may be insane… but they may also be right.”
And they were right!
The Russell 2000 shook off its cobwebs, tech picked up steam, and the bears got take to the woodshed.
I suspect that with a few more days of upside, sentiment could go full on psycho bullish.
And that's not out of the question. Friday's off to a great start already, and low trading volumes (due to the holiday) could exacerbate movement to the upside.