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Sentiment Report: Traders Are Still Scarred Up from the February Collapse


The market's been up for 5 of the past 6 days.

So do traders believe the February volatility spike is behind us?

The numbers say no. While the overall mood is improving, traders have not become positive. They're actually leaning neutral to slightly bearish.

This implies that the recent downturn left some scars… and perhaps that means there's upside fuel still on the sidelines.

Let's go through our sentiment indicators so you can see what I mean.

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

1) VIX Spread – Neutral

On Tuesday, February 6, the VIX hit a multi-year high at 50.30. Then it slowly drifted back into a more “historically normal” range between 16 and 20.

Following the better-than-expected jobs report on Friday morning, it fell as low as 13.31, a level not seen since February 1.

The VIX curve spent much of February inverted, but now it's normalizing.

The 3-months spread is around +2.00, which is neutral.

Traders are clearly scaling back their expectations for volatility as markets climb, which isn't at all out of the ordinary.

(click here for a primer on the VIX spread)

2) CNN Fear & Greed Index – Bearish

The Fear & Greed Index is at 25, which up from 8 last week.

This index operates on a 0-100 scale, and a reading of 25 means traders are fearful.

So traders are fearful, but less so.

3) AAII Sentiment – Bearish

The American Association of Individual Investors said that just 26.4% of individual investors are bullish.

This is a major decline from from 37.3% last week, and it’s the lowest reading since August 31, 2017.

it should be noted that individual investors tend to lag the market — it takes them a while to get more bullish when the market’s rising, and longer to get bearish when the market’s declining.

4) CBOE Equity Put-Call – Neutral

The newest reading of the CBOE equity put-call ratio is 0.61. This is the fourth straight number under the 0.654 long-term average.

The 10-day moving average is now 0.62, which is slightly below that long-term average.

Options traders were insanely bullish from December through early February. Then they got incredibly bearish as markets started breaking down.

Now they're looking neutral to modestly bullish.


Out of 4 sentiment indicators, we have:

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

Sentiment is still looking neutral to modestly bearish.

Traders are clearly in a much better mood than they were at the February 9 low, but they're not quite buying in whole-hog just yet.

It may take a break above the February 27 interim high at 2789 to get traders convinced we can head back to all-time highs:

The market's been up for 5 of the last 6 days. That's nice to see.

And it's even nicer to see that traders haven't gone bullish. This implies that there are still people on the sidelines who can pile into the market.

In particular, there seems to be a lot of doubt among individual investors, who tend to lag the market a bit. Typically, they take longer to get bullish when the market goes up. So perhaps that means we have more room to run from here.

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