All posts by Michael Comeau
Do Traders Love the Russell Rocket?
For most of September, stock market sentiment has been very bullish as indices made new highs. But with this week’s astounding surge in the Russell 2000, have the bulls truly gone crazy? Some traders believe this could be the start of a new “risk-on trade” into year-end, while others think this is the calm before the storm — especially since we’re heading into October, a historically volatile period. So let’s take a look at our 4 sentiment indicators to see how traders are feeling. (click here for a primer on the sentiment indicators below) 1) VIX Spread – Bullish The VIX hit a low of 9.51 on Friday morning, marking the 10th straight day with a sub-10 print. Meanwhile, the 3-month spread is at +4.2, which means traders are very, very bullish. When this number moves above +4.5, then it’s a clear sign of froth, and we could be there very soon. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 83, up from 66 last week. The F&G Index operates on a 1-100 scale, and a reading of 83 qualifies as extremely greedy. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that just 33% of individual investors are bullish, down substantially from 40.1% last week. Frankly, I find this reading bizarre, since it was taken on Thursday, right after Wednesday’s massive small cap rally. However, this reading has been pretty depressed all year, so maybe we shouldn’t be surprised. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio was at just 0.52 on Thursday, which well below the long-term average of 0.655. It’s also the lowest reading since June 22, 68 trading days ago. The 10-day moving average is 0.641, which is slightly below the long-term average, and indicate higher-than-normal demand for call options. So we have a hyper-bullish short-term reading combined with a slighly bullish 10-day trend. On balance, that makes traders moderately bullish. If we see more rock-bottom readings, that could be a sign of true complacency. Conclusion Out of 4 sentiment indicators, we have: 3 bullish (flat from last week) 0 neutral (down from 1) 1 bearish (up from 0) We have 3 bullish, 0 neutral, and 1 bearish indicators this week. The crowd is still fairly bullish overall, but a little bit less so than last week, based on the drop in the AAII survey and more neutral bent to the CBOE equity put-call, Thursday’s extreme reading notwithstanding. This week’s readings are a little less crazy than last week’s but make no mistake about it: the crowd is very bullish. Looking forward, things are obviously a bit tricky. The Russell 2000 and banks are strong, which is a good thing, but it’s starting to look like they’ve come too far too fast. We’re also seeing weakness in market leader Apple (AAPL), and stagnation in the biotech sector, which is always a key area to watch to judge traders’ risk tolerance. The top callers are still coming out of the woodwork, but keep one thing in mind: trends are always tricky to judge because they can go a lot further than many seem reasonable.
Continue Reading -->Did Breaking SPX 2500 Put a Spell on the Bulls?
Last week, sentiment among traders went all-out bullish as the SPX flirted with the 2500 mark for the first time ever. Subsequently, the SPX grinded up to set a new all-time high at 2508.85 before backing down just a bit. So let’s see what’s changed this week. Are traders encouraged by a more hawkish Fed? Do they care at all about North Korea? Let’s find out using our 4 sentiment indicators. (click here for a primer on the sentiment indicators below) 1) VIX Spread – Bullish The VIX is once again hovering around the 10 level after going as low as 9.54 this week, indicating that traders are not pricing in much volatility. The 3-month spread is at +3.98, which means traders are fairly bullish. When this number moves above +4.5, then it’s a clear sign of froth, and we could get there soon. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 66, down slightly from 73 last week. The F&G Index operates on a 1-100 scale, and a reading of 66 qualifies as moderately bullish. 3) AAII Sentiment – Neutral The latest AAII Sentiment Survey shows that 40.1% of individual investors are bullish. This is down slightly from 41.3% last week. This 40.1% reading indicates that individual investors are basically neutral, though it’s much higher than readings we’ve seen throughout 2017. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio was at 0.66 Thursday, which is right in line with the long-term average of 0.655. The 10-day moving average is 0.625, which is below the long-term average, and indicate higher-than-normal demand for call options. Stretching out things just a little bit more, this measure has been below the long-term average for 14 of the last 18 trading days. So there have been a lot of folks gunning for more upside through the options market. Conclusion Out of 4 sentiment indicators, we have: 3 bullish (flat from last week) 1 neutral (flat) 0 bearish (flat) We have 3 bullish, 1 neutral, and 0 bearish indicators this week. This week’s readings are a little less crazy than last week’s but make no mistake about it: the crowd is very bullish. Last week, I said to watch for a possible drop in the VIX to the 9.5 to 9.75 range, which could mark extreme complacency. As noted earlier, we got a 9.54 VIX print on Thursday, and maybe we’re about to find out if that did indeed mark a near-term top. Keep in mind, we’ve had a lot of moments like this in 2017. Sentiment gets super-bullish, technicals look stretched, and the leaders start breaking down. We’re certainly seeing that with profit-taking in names like Apple (AAPL) and Nvidia (NVDA), as well as the biotech sector. And every time, just when it looks like all is lost, the market pulls a rabbit out of its hat and just keeps on chugging. The market ‘feels’ shortable, but one thing has me hesitating: the surging Russell 2000, which has been showing relative strength and looking to makes it own all-time high. That’s a sign there’s still an appetite for risk out there, and perhaps more upside to come.
Continue Reading -->Did a Whiff of SPX 2500 Makes the Bulls Crazy?
This week, the SPX set multiple records with a new all-time high at 2498.43. And the index is still within striking distance of 2500, even with a missile launch in North Korea and a terror attack in London. So are traders complacent? Are the bulls asleep at the wheel? Let’s find out using our 4 sentiment indicators. (click here for a primer on the sentiment indicators below) 1) VIX Spread – Bullish The VIX is once again hovering around the 10 level, indicating that traders are not pricing in much volatility. The 3-month spread is at +3.86, which means traders are fairly bullish. When this number moves above +4.5, then it’s a clear sign of froth. We’re obviously not there yet. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 73, nearly doubling from 38 last week. The F&G Index operates on a 1-100 scale, and a reading of 73 qualifies as fairly bullish. 3) AAII Sentiment – Neutral The latest AAII Sentiment Survey shows that 41.3% of individual investors are bullish. This is up huge from 29.3% last week. This 41.3% reading indicates that individual investors are neutral, though it’s much higher than the year-to-date average of 32.9%. This reading has been fairly depressed all year, so I was surprised to see such a big jump, even with the market’s upward momentum. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio was at 0.56 Thursday, which is well below the long-term average of 0.655. The 3-day moving average is 0.5633, and the 10-day moving average is 0.598. Both are also below the long-term average, and indicate higher-than-normal demand for call options. Conclusion Out of 4 sentiment indicators, we have: 3 bullish (up from 2 last week) 1 neutral (up from 1 last week) 0 bearish (down from 1 last week) Traders are much, much more bullish than last week, and this is perhaps best seen in the AAII Sentiment and CBOE equity put-call measures. AAII sentiment isn’t bullish. But it’s made a huge jump, and a relatively large number of individual investors just got on board the bull train. The CBOE equity put-call is even more interesting. It has been below the long-term average for 11 of the past 13 trading days, which implies that traders are loading up on calls. I love trolling the permabears by correctly pointing out that they always say everyone’s bullish — even when the numbers clearly point to bearishness. But today, the permabears are right. The crowd is very bullish, which leads to a very logical question: are we set for a fall? It’s tough to say. I would watch for a drop in the VIX to the 9.5 to 9.75 range. That could mark extreme complacency, providing a possible opportunity to speculate on a market dip and spike in volatility. In such a scenario, I would certainly consider buying SPY puts, since they provide a cheap, efficient, and liquid way to speculate on a market decline.
Continue Reading -->Traders Are Betting on a Market They Hate
Last week, traders got fairly bullish following the massive bounce off Tuesday’s spike low. This week, things are tricker. The North Korea situation is not going away, Hurricane Irma is on the horizon, and the safety trade is picking up, with Treasury yields dropping like rocks. So let’s see what kind of mood the bull is in ahead of the weekend. (click here for a primer on the sentiment indicators below) 1) VIX Spread – Bullish The VIX hit a low of 10.02 last Friday morning, putting it in close range of generational lows. It’s hovering around 12 today. The 3-month spread is at +3.10, which means traders are somewhat bullish. However, they’re clearly not as bullish as last week when this reading was at +4.41. Readings of +5 should be considered outright froth, so we’re not even close to that territory. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 38, down from 46 last Friday. The F&G Index operates on a 1-100 scale, and a reading of 38 qualifies as modestly bearish. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 29.3% of individual investors are bullish. This is up from 25% last week. This 29.3% reading indicates that individual investors are slightly bearish. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio was at 0.55 Thursday, which is well below the long-term average of 0.655. The 3-day moving average is 0.5933, which is below the long-term average and thus bullish. These numbers indicate that traders are very bullish Conclusion Out of 4 sentiment indicators, we have: 2 bullish (flat from last week) 0 neutral (down from 1 last week) 2 bearish (up from 1 last week) We have 2 bullish, 0 neutral, and 2 bearish indicators this week. This is a slight degradation from last week, when traders were in a fairly buoyant mood. I find it interesting that the CBOE equity put-call ratio has been so bullish as of late. The equity put-call has been below the long-term average for 9 of the past 10 days. Unless traders are shorting massive amounts of calls, it looks like there are a whole lot of folks betting on a big rebound to new all-time highs above SPX 2490. This implies some level of complacency. However, the AAII Sentiment Survey remains depressed, even though the SPX is less than 2% off the record. This says that a lot of people are sitting on the sidelines, or are at least worried about the market. And that’s been a common trend all year. Bullish AAII readings have averaged just 32.9% this year. Let’s compare that to 2007, since people love comparing current market conditions to the last top, even though using a sample size of 1 is completely unscientific. From the start of 2007 to 9/6/2007, bullish AAII readings averaged 41.8%. So the overall market picture is pretty weird. I suspect that for some time, traders have been holding their noses while hitting the buy button, and that certainly seems to be the case today. There’s a lot of money riding on an extension of the bull market. But people don’t trust it. Isn’t it ironic?
Continue Reading -->The Bulls Are Coming Out of Their Caves
Last Friday, traders sentiment was right smack-in-the-middle neutral, perfectly reflecting the back and forth action in the market. On Tuesday, the SPX started on a very weak note, trading down to 2428.20 before the dip buyers stepped in, putting us as high as 2478.26 on Thursday. With this big rebound behind us, let’s see if traders’ moods have gotten better to close out the week. (click here for a primer on the sentiment indicators below) 1) VIX Spread – Bullish Three weeks ago, the VIX hit 17.28, but with markets steadying themselves, it hit a low of 10.02 on Friday morning, not far from generational lows. The 3-month spread is at +4.41, which means traders are very bullish. We’ve seen many readings above 4 this year, which is what I regard serious bullishness. Readings of +5 should be considered outright froth. If the SPX breaks out to new record highs, we coudl see such a reading again. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Neutral The Fear & Greed Index is at 46, up from just 22 last Friday. The F&G Index operates on a 1-100 scale, and a reading of 46 qualifies as as neutral. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that just 25% of individual investors are bullish. This is down from 28.1% last week. This 25.0 reading indicates that individual investors are bearish, and it’s the lowest reading since May 18. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio was at 0.57 Thursday, which is well below the long-term average of 0.655. The 3-day moving average is 0.58, which is below the long-term average and thus bullish. These numbers indicate that traders are very bullish Conclusion Out of 4 sentiment indicators, we have: 2 bullish (flat last week) 1 neutral (up from 0 last week) 1 bearish (down from 2 last week) We have 2 bullish, 1 neutral, and 1 bearish indicators this week. So traders are moderately bullish and in a better mood than last week. We’re definitely not in frothy territory, but if the SPX finds its footing again and blasts above 2490 to new all-time highs, that could change quickly. Whether that happens soon is unclear. On the plus side, it looks like traders are looking past today’s weak nonfarm payrolls report (or at least that was already priced in), since financials are very strong. Tech has been very resilient, but it would be nice to see small caps participate on a consistent basis.
Continue Reading -->Sentiment Update: From Depressed to Indifferent
Last Friday, traders became very bearish due to a combination of domestic and international strife, indicating that the market may finally be reacting to political volatility. Markets then powered up off the lows on Monday before a power rally on Tuesday. We’ve drifted sideways since then, so let’s take a fresh look at our 4 sentiment measures to see which way the crowd is leaning heading into this weekend. (click here for a primer on the sentiment indicators below) 1) VIX Spread – Bullish Two weeks ago, the VIX hit 17.28, but with markets steadying themselves, it’s back under 12. The 3-month spread is at +2.65, which means traders are moderately bullish. We’ve seen many readings above 4 this year, which is what I regard serious bullishness. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 22. The F&G Index operates on a 1-100 scale, and a reading of 22 qualifies as extremely fearful. This is just slightly up from 19 last week, and is one of the lowest readings we’ve seen this year. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 28.1% of individual investors are bullish, down from 34.2% last week. This 28.1% reading indicates that individual investors are moderately bearish, and it’s the lowest reading since June 1. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio was at 0.69 Thursday, which is justl above the long-term average of 0.655. The 3-day moving average is 0.61, which is below the long-term average and thus bullish. These numbers indicate that traders are moderately bullish Conclusion Out of 4 sentiment indicators, we have: 2 bullish (up from 0 last week) 0 neutral (down from 1 last week) 2 bearish (down from 3 last week) We have 2 bullish indicators and 2 bearish indicators, so they cancel each other out. So we’ve gone from very, very negative sentiment last week to pretty much neutral sentiment this week. Unfortunately, that means we don’t have much to go on heading into the weekend. When sentiment is leaning hard one way or the other, that can give us possible opportunities for countertrend trades, but we are definitely not there today. I like to say the bulls always say there are too many bears, and that bears always say there are too many bulls. But today everyone’s wrong: we’re split down the middle
Continue Reading -->Did Mr. Market Just Throw Another Sentiment Boomerang?
Last Friday, sentiment got pretty awful in the wake of North Korea’s threats of an attack on Guam. And then early this week, it went full-on psycho bullish after North Korea blinked and backed off. That was good for me since I’m speculating on a big decline in the VIX… and then it wasn’t so good. With traders fearing that President Trump will have trouble instituting pro-growth policies like tax and regulatory reforms, the VIX spiked as high as 15.77 on Wednesday, up 40% from Tuesday’s 11.25 low. So my nicely profitable trade is now a loser! Let’s take a fresh look at our 4 sentiment measures to see which way the crowd is leaning heading into the weekend. (click here for a primer on the sentiment indicators below) 1) VIX Spread – Bearish The VIX is at 14.82 this morning, well above the July 26 all-time low at 8.84, and also above trend for this year. The 3-month spread is at +0.2, which means the VIX curve is flat. Traders are pricing in quite a bit of short-term volatility, so once again, this reading is bearish. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 19. The F&G Index operates on a 1-100 scale, and a reading of 19 qualifies as extremely fearful. 3) AAII Sentiment – Neutral The latest AAII Sentiment Survey shows that 34.2% of individual investors are bullish. This 34.2% reading isn’t terribly far off the 38.5% long-term average, and indicates that individual investors are basically neutral. I thought this would be lower, but the number is what it is. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.78 Thursday, which is well above the long-term average of 0.66. The 3-day moving average is 0.69, which is slight above the long-term average. The 10-day moving average is 0.74, which is fairly high. These numbers indicate that traders are very bearish. Conclusion Out of 4 sentiment indicators, we have: 0 bullish 1 neutral 3 bearish The data indicate that sentiment boomeranged in a big way. Traders were pricing in the end of the world last Friday. Then they got happy on Monday and early Tuesday. And now they’re depressed again. You could say volatility is becoming more volatile. And I think this is a great thing because the market’s actually giving some real back and forth action. That means more opportunities for active traders, and action that’s actually interesting to watch. I don’t know about you, but I found June through late July to be agonizing to watch. Maybe the sudden spike in volatiilty means there’s trouble down the road… but at least we’ll be awake for it. Now I’m still speculating on a decline in the VIX. To be more specific, I am: -Long VXX puts -Short VXX call spreads Will the trade go profitable again? The ideal situation is a repeat of last Friday to Monday, when sentiment boomeranged from extreme fear to extreme greed in the blink of an eye. I guess I’m about to find out if that’s just wishful thinking…
Continue Reading -->Is the Big VIX Move Over?
Fear is here, courtesy of North Korea. Just a couple weeks after the VIX hit an all-time low, volatility is exploding as traders start to price in a potential conflict with North Korea. This morning, the plot thickened after China said it won’t help North Korea if it launches missles at the US. However, it would not stand for the US attacking first. Way back in July, I used options to make a leveraged bet on the VIX, and the huge spike in the VIX put the trade in the green. I took off part of the position yesterday just before the equity market close, and will likely close out the rest this morning. At the end of this piece, I’ll outline why I may soon speculate on a VIX collapse. That makes now a great time to go through our 4 sentiment indicators to see if the crowd also sees sunshine ahead for equities. (click here for a primer on the 4 sentiment indicators below) 1) VIX Spread – Bearish The VIX is at 16.57, which means it’s nearly doubled the July 26 all-time low at 8.84. The 3-month spread is at -1.05, which means the curve is inverted and short-term fear is very, very high. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 31. The F&G Index operates on a 1-100 scale, and a reading of 31 qualifies as Fearful. 3) AAII Sentiment – Neutral The latest AAII Sentiment Survey shows that 33.7% of individual investors are bullish. This 33.7% reading isn’t terribly far off the 38.5% long-term average, and indicates that individual investors are basically neutral. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.88 Thursday, which is well above the long-term average of 0.66. The 3-day moving average is 0.79, which is also well above the long-term average. These numbers indicate that traders are very bearish. Conclusion But of 4 sentiment indicators, we have: 0 bullish (down from 2 last week) 1 neutral (flat) 3 bearish (up from 1 last week In July, the crowd was absolutely nutty. But as we’ve seen many times this year, at the first sign of trouble, fear is getting priced in awfully quickly. The action is quite reminiscent of the April 13 volatility spike when the US dropped a 22,000 bomb on ISIS forces in Afghanistan. North Korea and Syria were also in the news. On that day, the CBOE equity put-call jumped to a whopping 0.96 with a 3-day moving average at 0.81. And as of yesterday, the CBOE equity put-call jumped to 0.88 with a 3-day moving average of 0.77.That dip was very short liveed, and the SPX soon spiked 60 points. This chart shows the SPX vs. the VIX (VIX is the purple line, with the April volatility spike highlighted: So I’m looking to close out the rest of my VIX position, and actually speculate on a VIX decline, likely through VXX put options. (UPDATE at 9:45 a.m. ET: I am now short VXX call spreads, and long VXX puts) To make a very long story short, the term structure of VIX futures puts a downward force on VXX over the long run. Shorting volatility has been the best trade of 2017. But the recent volatility spike likely had traders being forced to do 3 things: 1) Close outright short volatility bets on VIX/VXX puts cover shorts 2) Buy SPX/SPY/QQQ puts and VIX/VXX calls to hedge their short volatility exposure And now we’re looking at an inverted VIX curve and traders likely overpaying for VIX options. Meanwhile, China’s posture indicates that they want no part of a North Korea offensive. Saying they won’t tolerate a US aggression allows them to save face, and seems like a happy medium. If the fear gets ratcheted down, I suspect the VIX will be back in the 10-12 range in fairly short order. I’ll provide an update if I actually make a trade.
Continue Reading -->T3’s Take 3: Nuclear Summer
1) Fear Returns Traders were on edge again today on fears of a conflict with North Korea. Japan and South Korea warned that they would not tolerate aggressions from North Korea, including a missile launch at Guam. News reports indicate that Japan moved a PAC-3 Patriot missile system to Tokyo to shoot down North Korean missiles. Sentiment has been rapidly declining. The CBOE equity put-call ratio hit 0.83 yesterday, which is the highest reading since April 13, 2017. And what happened on April 13, 2017? The US military dropped that giant 22,000 bomb on ISIS forces on Afghanistan, which coincided with escalating tensions with North Korea. And a week prior, the US attacked Syria. As of yesterday’s close, the 3-day moving average for the equity put-call is now 0.76, which indicates negative short-term sentiment. And tomorrow morning, it should be much, much higher, since traders often buy lots of put options when the market drops quickly. Stocks immediately sold off at the open, and volatility expectations went into overdrive. the VIX rose as high as 16.17. putting it 82% above the July 26 record low at 8.84. That put my long VIX options trade nicely in the green. I used the pop to exit a big part of my position. I’ll look to get out of the rest tomorrow, and depending upon what I see tomorrow, I may end up getting short the VIX heading into the weekend. 2) Ugly Action The market did nothing in June, but judging by today’s big move in the VIX, August may be another story altogether. The SPX fell as low as 2444.91 this morning before bouncing, and then driving lower into the close to at 2438.21, down -1.5%. We saw relative weakness in key areas of the market like large-cap technology, biotechnology, and small caps. Traders watch these groups to judge the market composure. High-yield, regional banks, and materials ETF’s also took big hits. This implies that traders are fearful of the overnight news flow. Meanwhile, “risk off” instruments like US Treasuries, silver, gold, and utilities stocks performed well, with the Vaneck Vectors Gold Miners ETF (GDX) rising 1.6%. In early June, my colleague Jeff Cooper delivered compelling analysis on gold, saying the folowing: The breakout above $1280 is confirmed by trade over $1295, which issues significantly higher projections which we will detail before the weekend. At the same time, a close in gold above $1285 and especially $1295 on the important Friday weekly closing basis validates the idea of a new leg higher. Gold is now flirting with $1295, so keep an eye on it. If Jeff is correct, we could see a major rally. 3) Scott Redler’s Take: 75% Chance of Stormy Weather This afternoon, Scott Redler appeared on CNBC’s Futures Now Show to discuss the market’s recent breakdown. He estimated that there was a 75% chance that we’d see more trouble ahead. In terms of specific market levels to watch, Scott said it was important to see how the SPX and QQQ handled their respective 50 day moving averages at 2455 and $141.35. Both levels were lost today, so it’s clear that the bears have scored their first real victory in quite some time. Click here to watch Scott’s segment
Continue Reading -->The Bull Market Can Continue Forever. Really?
It’s foolish to read too much into any one anecdote, especially when it comes to soundbites and one-liners. But this statement from Leuthold Chief Investment Strategist Jim Paulsen on CNBC really caught my eye: “We’ve got a fully employed economy, rising real wages. We restarted the corporate earnings cycle. We’ve got strong confidence among business and consumers,” he said on “Squawk Box.” “The kick is we can do all of this without aggravating inflation and interest rates,” he said. “If that’s going to continue, I think the bull market could continue to forever.” To be fair, Mr. Paulsen tempered his statement with by saying “if that’s going to continue.” Nonetheless, it seems a little overboard to even imply a bull market can go on forever. That makes now a great time to go through our 5 sentiment indicators to see if the crowd also sees sunshine ahead for equities. (click here for a primer on the 5 sentiment indicators below) 1) VIX Spread – Bullish The VIX is at 9.82, which puts it within range of generational lows. That puts the 3-month spread at 3.97, which means that traders are fairly bullish. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 63. The F&G Index operates on a 1-100 scale, and a reading of 63 qualifies as mildly greedy. 3) AAII Sentiment – Neutral The latest AAII Sentiment Survey shows that 36.1% of individual investors are bullish. This 36.1% 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 0.71 Friday, which is above the long-term average. The 3-day moving average is 0.70, which is above the long-term average. These numbers indicate that traders are moderately bearish. 5) ISE Sentiment – SUSPENDED! For months, I’ve been pondering kicking out this sentiment indicator since it has seemingly lost predictive value. However, ISE has announced it has suspended the index, so now I’m being forced to eliminate it. I’ll likely replace it with the CBOE Skew index (SKEW), which uses options prices to determine whether traders are pricing in extreme risks. Conclusion Out of 4 sentiment indicators, we have: 2 bullish 1 neutral 1 bearish So it looks the crowd is in a more neutral state of mind after getting nutty a couple weeks ago. They definitely don’t believe in a “this bull market can last forever” scenario. That’s been pretty common this year. We’ve seen a few stretches with hyper-bullish sentiment, but they’ve never lasted. That’s been very frustrating for the bears, because these rapid pullbacks in sentiment seem to prevent the market from topping out. At the late 2007 market top, sentiment was incredibly bullish, but we’re seeing nothing of the like in 2017. So I’ll ask a question: can the market top without the bulls buying in emotionally? I really don’t know the answer.
Continue Reading -->