Sentiment Report: Manic Panic for the Holidays
Let me get right to the point: traders are crazy bullish right now.
I love to troll the bears for crying that everyone's too bullish, but today they're finally right.
Let's work through the numbers so you can see what I'm talking about — and I'll give you an idea of how you can start 2018 on the right foot.
(click here for a primer on the sentiment indicators below)
1) VIX Spread – Bullish
Late Friday morning, the VIX was as low as 9.35, which is extraordinarily low based on historical norms.
On Wednesday, it hit 8.9, the lowest level since the 8.56 all-time low from November 24.
This gives us a 3-month spread at 3.8 indicating that traders are very bullish, and expect almost no volatility heading into the final week of the year.
(click here for a primer on the VIX spread)
2) CNN Fear & Greed Index – Bullish
The Fear & Greed Index is at 68, exactly flat from last week.
This index operates on a 0-100 scale, and a reading of 68 is basically moderately bullish.
3) AAII Sentiment – Bullish
The latest AAII Sentiment Survey shows that 50.5% of individual investors are bullish, a big jump from last week's 45.0% reading.
This is the single highest reading of 2017. So basically, it took 11 months of nonstop grinding up to get individual investors overly excited about stocks!
It's also well above the 38.5% long-term average.
All year long, the permabears have been saying that retail investors are “all in.”
Well, the permabears are finally correct!
4) CBOE Equity Put-Call – Bullish
The CBOE Equity-Put Call ratio's latest reading is 0.560. This is below the 0.655 long-term average.
The 10-day moving average is 0.563, which is extremely low on a historical basis.
And the 3-day moving average, which I use to measure very short-term bullishness, is 0.550 — again, very low.
These numbers point to extreme bullishness among options investors, who seem to expect that we're going to end the new year with a big bang above SPX 2700.
Conclusion
Out of 4 sentiment indicators, we have:
- 4 neutral (up from 3 last week)
- 0 neutral (down from 1 last week)
- 0 bearish (flat from last we)
On October 6, I made the following melodramatic declaration:
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.
That time, the bulls were right to be so positive, because after that, all indices hit fresh all-time highs.
But now I'm wondering if we're about to see a repeat of December 2016.
For the past two weeks, sentiment has been about as bullish as it gets, which incidentally, is exactly what happened last December.
That resulted in a brief drawdown into the 2017 New Year, after which it was off to the races.
Now, if you're not sure of where to put your money in 2017, I'd check out
Scott Redler's 2018 Market Outlook ReportIt includes 18-22 picks that could seriously outperform in 2018, including names in the crypto currency, tech stock, financials, and commodities spaces.
Heck, Scott's even dipping his toe in precious metals!