Are the Bulls Still Crazy?
On July 21, I went long VIX calls based on what I saw as:
A) Bullish sentiment gone truly out of control
B) My expectation that volatility was due for a reversion to the mean.
And subsequently, the VIX hit a record low of 8.84, leaving me feeling like a dope.
It's since pushed back above 10, so let's take a fresh look at sentiment to see just how confident the crowd is.
(click here for a primer on the 5 sentiment indicators below)
1) VIX Spread – Bullish
The VIX is sitting around 10.50 this morning.
That puts the 3-month spread at 3.29, which means that traders are moderately bullish.
However, this is a major downshift from the recent readings around 5.
(click here for a primer on the VIX spread)
2) CNN Fear & Greed Index – Bullish
The Fear & Greed Index is at 72.
The F&G Index operates on a 1-100 scale, and a reading of 72 qualifies as moderately greedy. This indicator has been subdued for most of 2017, but it has been more bullish than usual lately.
3) AAII Sentiment – Neutral
The latest AAII Sentiment Survey shows that 34.5% of individual investors are bullish.
This 34.5% reading is roughly in-line with the 38.5% long-term average, and indicates that individual investors are basically neutral, even though the major indices are still near all-time highs.
4) CBOE Equity Put-Call – Bearish
The CBOE Equity-Put Call ratio was at 0.63 Friday, which is in-line with the long-term average.
The 3-day moving average is 0.66, which is actually above the long-term average.
These numbers indicate that traders are moderately bearish.
5) ISE Sentiment – Neutral
The ISE Sentiment Index is at 76 (meaning 76 calls bought for every 100 puts. The 10-day moving average is 93.4 (93 calls for every 100 puts)
A 10-day moving average of 93.4 does indicate more demand for puts than calls, but relative to recent history, it's actually a bit high. So I'll call it neutral.
Conclusion
Out of 5 sentiment indicators, we have:
- 2 bullish (down from 4 last week)
- 2 neutral (up from 1)
- 1 bearish (up from 0)
So it looks the crowd is getting back to a more neutral state of mind after getting a little nutty last week.
That's been pretty common this year. We've been getting occasional stretches of hyper-bullish sentiment, but they tend to die pretty quickly.