All posts by Michael Comeau
T3 Live’s Mystery Chart #1 Revealed!
Yesterday, we played a little game. We posted this mystery chart, and asked traders whether they were bullish or bearish on it, and to guess the ticker: Before we reveal the answer, let’s see whether traders were bullish or bearish on this particular ticker: 52.7% were bullish, 30.4% were bearish, and 16.9% were in the middle. And the ticker is… GDX! 7 people guessed it right in our survey (and even more did on Twitter). A few other traders were close, guessing other gold instruments like GLD and NUGT. So what do you think? Should we do this again next week? Let us know in the comments!
Continue Reading -->Are You Bullish or Bearish on This Mystery Chart?
UPDATE!: We revealed the mystery chart here. Hi all! We’re doing a little experiment here. Here is a year-to-date daily chart of a mystery stock. Are you bullish or bearish on it? Scroll down to cast your vote, and guess the ticker! (only 3 people have it right so far…) Loading…
Continue Reading -->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. Conclusion 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.
Continue Reading -->Sentiment Report: Are There Still Too Many Bulls?
Last week, the market was in the most boring position possible. Stocks were consolidating and sentiment looked just a tad bearish. So there was no extreme in the technical position of the markets, and no extreme in sentiment either. That mad it hard to have a firm opinion on where things could go. We started the week on a happy note, before the bears took control and put in 4 straight down days. So let’s take a look at our sentiment indicators to see if the bulls are freaking out. (click here for a primer on the sentiment indicators below) 1) VIX Spread – Bearish 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. But it’s hovering around 25 on Friday as the fear gets ratcheted up. The VIX curve is still inverted, with a 3-month spread around -6.00 This means traders are still pricing in significant volatility, which makes sense. Ever since volatility exploded in early February, we’ve seen a huge expanion in range. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 8, which is dowm from 15 last week. This index operates on a 0-100 scale, and a reading of 8 means traders are very fearful (or bearish). 3) AAII Sentiment – Neutral Sentiment among individual investors is turning. The American Association of Individual Investors (AAII) said that 37.3% of individual investors are bullish, according to their latest survey. This is a substantial change from last week, when 44.7% of investors were bullish. The long-term average is 38.4%, so 37.3% is more or less neutral. 4) CBOE Equity Put-Call – Neutral The newest reading of the CBOE equity put-call ratio is 0.72. The 10-day moving average is now 0.623, which is slightly below the long-term average of 0.654. Options traders were insanely bullish from December through early February. Then they got incredibly bearish as markets started breaking down. Now they’re looking modestly bullish. Conclusion Out of 4 sentiment indicators, we have: 1 bullish (flat from last week) 1 neutral (flat from 0 last week) 2 bearish (flat from 3 last week) Sentiment is still modestly bearish. I’d argue that it’s just a little more negative than last week, and certainly not indicative of panic. This is good for the bears. If the market keeps declining, there are still plenty of bulls that can be turned bearish, which could mean more negative selling pressure. The bears should be most excited about the CBOE equity put-call ratio, which indicates a lot of call option demand over the past couple of weeks. Typically, we see very bearish CBOE equity put-call reading around market bottoms, and we’re not even close to that. I’d like to see a 10-day moving average above 0.7, and a 1-day reading over 0.8. An extreme 1-day reading sometimes marks short-term capitulation. Unfortunately, we won’t have Friday’s reading until the evening. So I’ll keep everyone posted Monday morning to see if things change.
Continue Reading -->Sentiment Report: Volatile Markets, Neutral Traders
In last week’s sentiment report, traders were somewhat fearful, even with stocks rising like a phoenix off the February 9 low. Since that low, we had: -6 straight days up with markets finishing near the highs each day -2 down days -1 anemic up day with a finish near the day’s lows So let’s measure how traders are feeling in this new age of volatility. (click here for a primer on the sentiment indicators below) 1) VIX Spread – Bearish On Tuesday, February 6, the VIX hit a multi-year high at 50.30, and it’s slowly drifted back under 20, which puts it within range of historical norms. The VIX curve is still inverted, with a 3-month spread around -1.5. This means traders are still pricing in significant volatility, which makes sense. Ever since volatility exploded in early February, we’ve seen a huge expansion in range. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 15, which is flat from last week. This index operates on a 0-100 scale, and a reading of 15 means traders are very fearful (or bearish). This is a shocking change. Fear & Greed was at 76 just a month ago. 3) AAII Sentiment – Bullish The American Association of Individual Investors’ Sentiment Survey shows that 44.7% of those surveyed are bullish. This is down 3.8% from last week’s 48.5% reading. The long-term average is 38.4%, so we’re back in bullish territory. But keep in mind that AAII sentiment tends to lag the action a bit. It was pretty neutral for most of 2017, even with markets hitting one record high after another. 4) CBOE Equity Put-Call – Neutral The long-term average of the CBOE equity put-call ratio is 0.63. The 10-day moving average is now 0.662, which is basically in-line with the long-term average of 0.654. 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. Conclusion Out of 4 sentiment indicators, we have: 1 bullish (flat from last week) 1 neutral (up from 0 last week) 2 bearish (dowm from 3 last week) Ack! We’re in the most boring positions possible. Stocks are consolidating and sentiment looks just a tad bearish. There’s no extreme in the technical position of the markets, and there’s no extreme in sentiment either. That makes it hard to have a firm opinion on where things can go from here, but here’s an ideal possible scenario for the bulls. We keep bouncing sideways for the next month or so, perhaps between 2660 and 2760, with several breakdowns and breakouts that don’t have follow-through. If that happens, perhaps bearish sentiment will build up to provide the market with upside fuel for a breakout back towards the 2872.87 high. On the flip side, the best scenario for the bears would be a slow, ugly descent before a major break below the SPX’ 200 day moving average, which was lost and then quickly reclaimed on the big 2/9 rebound day. Here’s an SPX chart laying out these levels: Another thing to wonder about is whether we’ve set a higher baseline range for the VIX. As you can see, it spent an awful lot of time between 9 and 15, which was outrageously low. It will be interesting to see if traders price in a “closer to normal” range for expected volatility. (Related: Primer on the VIX)
Continue Reading -->Sentiment Report: High Fear, Higher Stocks
Last week, following the explosion in market volatility, the bulls were finally brought down to earth after 13 months of straight-up action. In January, sentiment was as bullish as I’ve ever seen it in my 14 years of watching the market. Now, traders are clearly more fearful, even with 6 days of bullish buy the dip action. Let’s dig into our handy dandy sentiment indicators so you can see just how much things have changed. (click here for a primer on the sentiment indicators below) 1) VIX Spread – Bearish On Tuesday, February 6, the VIX hit a multi-year high at 50.30, and it was around 30 last Friday morning. But with stocks rebounding hard this week, the VIX elevator dropped down hard. As of late Friday morning, the VIX was around 18, right in-line with historical averages. The 3-month VIX spread is right around 0 now. This means traders are still pretty bearish. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 15, up from just 8 last week. This index operates on a 0-100 scale, and a reading of 15 means traders are very fearful (or bearish). This is a shocking change. Fear & Greed was at 76 just a month ago. 3) AAII Sentiment – Bullish The American Association of Individual Investors’ Sentiment Survey shows that 48.5% of those surveyed are bullish. This is up huge from last week’s 37% reading. The long-term average is 38.4%, so we’re back in bullish territory. 4) CBOE Equity Put-Call – Bearish The long-term average of the CBOE equity put-call ratio is 0.64. And from December 7, 2016 to February 1, there wasn’t a single day above that long-term average, which means there was an above-average level of call buying. The trend changed on Friday, February 2. Since then, the CBOE equity put-call has averaged 0.716, which means a sudden increase in demand for put options. So options traders went from incredibly bullish to moderately bearish. Conclusion Out of 4 sentiment indicators, we have: 1 bullish (up from 0 last week) 0 neutral (down from 1 last week) 3 bearish (up from 0 last week) Things have changed, and traders are presented with quite the interesting pickle. Sentiment has changed so much in the past 2 weeks, and it’s evident that fear levels are very high. Traders are freaked out, and perhaps rightly so. We went an eternity without a real pullback, so it could be argued that we should have had a bigger one. However, Friday marked the 6th straight day of buy the dip action, and the VIX is back to normal levels. This is is right out of the 2017 playbook. That was when it made sense to buy every single dip, regardless of the news and the ‘feel’ of the market. If you didn’t comply, you sat back and watched the train leave the station with all the money, every single time. The big question now is this: is the sudden rush of negative sentiment a sign that there is sufficient buying power on the sidelines to keep the market going? And if the SPX keps going to say, 2800, will buyers rush because of the greatest fear of all? You know, the Fear Of Missing Out.
Continue Reading -->Sentiment Report: The Fear Factor
It took a while, but the bulls were finally brought down to earth after 13 months of straight-up action. And sentiment was remarkably positive from December 2017 until last Friday when volatility exploded, leading to the VIX spiking over 50 on Tuesday morning. It’s common for the market to top out when sentiment gets to extreme levels. But it actually took 2 whole months for that to happen during this once-in-a-life-time stretch of happiness! Now, let’s take a look at how the mood has changed using our handy dandy sentiment indicators. (click here for a primer on the sentiment indicators below) 1) VIX Spread – Bearish As of Friday morning, the VIX was hovering right around 30. It was actually under 10 in early January, so this is a major change. And the 50.30 spike high matched the 53.29 high set in the August 2015 mini-crash. The 3-month VIX spread is completely blown out at around -10. This means traders are very bearish and expect a lot of volatility. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 8, down from 59 last week. This index operates on a 0-100 scale, and a reading of 8 means traders are very fearful (or bearish). This is a shocking change. Fear & Greed was at 76 just a month ago. 3) AAII Sentiment – Neutral The American Association of Individual Investors’ Sentiment Survey shows that 37% of those surveyed are bullish. This is down from 44.7 last week. The long-term average is 38.4%, so this is basically neutral. Interestingly, this indicator was mostly neutral in 2017, and only turned bullish in January 2018 — implying that individual investors were a bit late to the party. 4) CBOE Equity Put-Call – Bearish The long-term average of the CBOE equity put-call ratio is 0.654. And from December 7, 2016 to February 1, there wasn’t a single day above that long-term average, which means there was an above-average level of call buying. The trend changed on Friday, February 2. Since then, the CBOE equity put-call has averaged 0.736, which means a sudden increase in demand for put options. A single-day reading around 1 would indicate extreme fear, and we’re not even close to that yet. In the past 5 days of volatility, the highest reading was 0.77. So options traders are bearish, but only moderately so. Conclusion Out of 4 sentiment indicators, we have: 0 bullish (down from 4 last week) 1 neutral (up from 0 last week) 3 bearish (up from 0 last week) 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. I threw in that sentence “Timing market turns based on sentiment indicators is awfully tricky” for a very good reason. These indicators are for color. They are only one part of the investment process, not signals on their own. Turns out that sentiment indicators were not very helpful in calling the 2018 top, because they’ve been very bullish since early December. So unfortunately, they may not be helpful in calling the bottom either!
Continue Reading -->Volatility Is Picking Up but Nobody Cares
Sentiment has been remarkably bullish since December 2017. It’s common for the market to top out when sentiment gets to extreme levels, but as we’ve learned in this once-in-a-life-time stretch of happiness, there’s no guarantee. And indeed, even though volatility reared its head this week, the bulls stayed pretty dang happy. So let’s dig into our sentiment indicators to see if traders are still feeling happy. (click here for a primer on the sentiment indicators below) 1) VIX Spread – Bullish Three weeks ago, the VIX made several intraday lows around 9, indicating that traders expect almost no volatility. The VIX hit a 6-month high of 15.42 this week, but it came down to around 13. Now, on the surface, that may imply that traders are slightly more cautious. However, the curve of the VIX futures term structure is very, very flat. This again means that traders expect near-zero volatility for the next few months. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 59, down from 72 last week. This index operates on a 0-100 scale, and a reading of 59 means traders are moderately greedy (or bullish). So no real change here. 3) AAII Sentiment – Bullish The AAII Sentiment Survey shows that 44.8% of survey respondents are bullish, which is well above the long-term average of 38.3%. It’s slightly down from last week’s 45.5% level, but still bullish overall. We did see an uptick in investors calling themselves bearish, but it’s nothing dramatic. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio’s latest reading is 0.59. This is slightly below the 0.654 long-term average. The 10-day moving average is 0.558, which is extremely low on a historical basis. So it’s the same old story: traders are buying up call options like they’re hotcakes, and they’re not buying many puts. Of course, that’s worked out beautifully for bulls because the market hit a string of new all-time highs in January! Conclusion Out of 4 sentiment indicators, we have: 4 bullish (flat from last week) 0 neutral 0 bearish 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. And I’ll repeat what I’ve been saying for the last 3 weeks: Well, the trend has gone on a lot longer than seemed reasonable! Now, no one knows how this is going to end, or when. It’s very fashionable to point out that eventually, the market’s going to blow up in the bulls’ faces… but people have been saying that for years. So let’s take things one step at a time. The bears will eventually have their day in the sun, but we just don’t know when. One thing’s for sure though: volatility is starting to pick up, so stay on guard. The bears have been fooled time and time again, but sooner or later, they are going to bite.
Continue Reading -->Sentiment Report: 100% Happy Traders
Sentiment has been incredibly bullish since early December. It’s common for the market to top out when sentiment gets to extreme levels, but timing trades off sentiment indicators is largely a fool’s game – something made quite clear with the market’s nonstop string of record highs. Stocks just won’t break down, and the dip buyers get rewarded every time. So let’s dig into our sentiment indicators to see if traders are still feeling happy. (click here for a primer on the sentiment indicators below) 1) VIX Spread – Bullish Three weeks ago, the VIX made several intraday lows around 9, indicating that traders expect almost no volatility. The VIX has since bounced around the 11-12 level. Now, on the surface, that may imply that traders are slightly more cautious. However, the curve of the VIX futures term structure is very, very flat. This again means that traders expect near-zero volatiltiy for the next few months. But that’s no surprise since we haven’t had a 3% pullback in about a decade! (okay, it’s not a decade, but it has been more than a year) So it’s no surprise that traders expect more of the same. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 78, up from 72 last week. This index operates on a 0-100 scale, and a reading of 78 means traders are greedy (or bullish). 3) AAII Sentiment – Bullish Now this is where things get nutty. The AAII Sentiment Survey shows that 45.5% of survey respondents are bullish, down from last week’s 54.1% reading. However, this number has ben elevated since December 14, indicating that individual investors have been getting more bullish over the past couple of months. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio’s latest reading is 0.56. This is well below the 0.654 long-term average. The 10-day moving average is 0.526, which is extraordinarily low on a historical basis. And the 3-day moving average, which I use to measure very short-term bullishness, is just 0.537. So it’s the same old story I’ve been telling for the past month and a half: traders are buying up call options like they’re hotcakes, and they’re not buying many puts. Of course, that’s been a great strategy because stocks have been so strong. Conclusion Out of 4 sentiment indicators, we have: 4 bullish (flat from last week) 0 neutral 0 bearish 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. And I’ll repeat what I’ve been saying for the last 3 weeks: Well, the trend has gone on a lot longer than seemed reasonable! I can’t remember traders ever being so positive for so long without a single hiccup. When it ends, no one knows.
Continue Reading -->Sentiment Report: 100% Happy Traders
Sentiment has been incredibly bullish since early December 2017. It’s common for the market to top out when sentiment gets to extreme levels, but there’s no guarantee. And indeed, the bulls have been getting rewarded at every turn since the market just won’t break down. So let’s dig into our sentiment indicators to see if traders are still feeling happy. (click here for a primer on the sentiment indicators below) 1) VIX Spread – Bullish Two weeks ago, the VIX made several intraday lows around 9, indicating that traders expect almost no volatility. The VIX has ticked up around 12. Now, on the surface, that may imply that traders are slightly more cautious. However, the curve of the VIX futures term structure is very, very flat. This again means that traders expect near-zero volatiltiy for the next few months. But that’s no surprise since we haven’t had a 3% pullback in about a decade! (okay, it’s not a decade, but it has been more than a year) So it’s no surprise that traders expect more of the same. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 72, down slightly from 77 last week. This index operates on a 0-100 scale, and a reading of 72 means traders are moderately greedy (or bullish). So no real change here. 3) AAII Sentiment – Bullish The American Association of Individual Investors just released their latest weekly sentiment survey. 54.1% of survey respondents were bullish, which is well above the long-term average of 38.3%, and a bounce from last week’s 48.7% reading. Two weeks ago, we had a momental reading of 59.8%, which was the highest level since December 2010. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio’s latest reading is 0.56. This is well below the 0.654 long-term average. The 10-day moving average is 0.549, which is extremely low on a historical basis. And the 3-day moving average, which I use to measure very short-term bullishness, is just 0.51. So it’s the same old story: traders are buying up call options like they’re hotcakes, and they’re not buying many puts. Of course, that’s worked out beautifully for bulls because the market just won’t break down! Conclusion Out of 4 sentiment indicators, we have: 4 bullish (flat from last week) 0 neutral 0 bearish 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. And I’ll repeat what I’ve been saying for the last 2 weeks: Well, the trend has gone on a lot longer than seemed reasonable! Again, I can’t remember seeing sentiment this positive for this long. And I have to imagine the bears are going nuts, just getting grinded out a penny at a time. Remember, picking a top based on sentiment is extremely tricky business… so tread carefully.
Continue Reading -->