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Weekly Sentiment Update: Can We Ride a F.O.M.O. Wave to SPX 2500+?
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. But let’s look at the actual numbers to see how the crowd actually feels. Last week, traders swung to a moderately bearish stance. But yesterday, the SPX blasted up to a new record high of 2418.71, so let’s see just how quickly sentiment is turning. (click here for a primer on these 5 sentiment indicators) 1) VIX Spread – Bullish Last Thursday, the VIX spiked up to 16.30, but it’s collapsed back down to 9.83, butting it within range of the the 9.56 generational low on May 9. Last week, the VIX curve nearly inverted, but the 3-month curve is at +4.0, indicating traders not pricing in much near-term volatility. Or in plain English, folks are bullish. 2) CNN Fear & Greed Index – Neutral The Fear & Greed Index is at 56, up from 45 last week. F&G operates on a 1-100 scale, and a reading of 56 is neutral. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 32.9% of individual investors are bullish, up from 23.9% last week. This 32.9% reading is below the 38.5% long-term average, and indicates that individual investors are not particulary trusting of the market. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio was at 0.59 yesterday with a 3-day moving average of 60.3. These numbers are under historical norms, indicating that traders are not buying many put options. Therefore, they are bullish. 5) ISE Sentiment – Neutral The ISE Sentiment Index is at 92 this morning (92 calls bought for every 100 puts). The 10 day moving average is 92.3. These numbers show higher put demand, but they’re actually in-line with recent averages, so I’ll also lump it in as neutral again. Conclusion Out of 5 sentiment indicators, we have: 2 bullish (+2 from last week) 2 neutral (-1 from last week) 1 bearish (-1 from last week) The numbers indicate that we’re seeing much less fear than last week. So the important question to ask is whether we’re on the verge of outright forth. I’m going to guess no. The AAII Sentiment Survey indicates that individual investors are pretty skittish. Typically, at tops, you see the masses wanting to get in. On a related note, a recent Gallup poll showed that just 54% of US adults have participated in the 2009-2017 bull market. From 2001 – 2008, 62% of adults owned stocks. On a second related note, have you noticed the sudden BitCoin craze? Crypocurrencies are going up 5% or 10% a day, which looks like the 1999 dot-com boom all over again. If there’s froth, it’s in BitCoin, not stocks! (not that BitCoin can’t double or triple from here…) Looking forward, I’m wondering if the bears are destined to capitulate on a sudden wave of F.O.M.O. (fear of missing out), driving up SPX to 2500+ in a blowout move.
Continue Reading -->Weekly Sentiment Update: Some Fear Is Here. But Maybe Not Enough.
Just when everyday seemed to greet me with a smile Sunspots have faded and now I’m doing time Now I’m doing time ‘Cause I fell on black days -Chris Cornell (R.I.P.) Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. But let’s look at the actual numbers to see how the crowd actually feels. Last week, traders swung to a moderately bullish stance. But yesterday, as the Trump/Comey controversy heated up, the SPX dove -1.8% — the biggest one-day decline since September 9, 2016. That’s a span of 172 trading days! So let’s take a fresh look at sentiment and figure out whether the bears are still growling. (click here for a primer on these 5 sentiment indicators) 1) VIX Spread – Bearish This morning, the VIX is at 15.89, putting up 66% from the 9.56 generational low on May 9. The curve is nearly inverted and the 3-month spread is at just +0.1, which means that traders are very fearful. 2) CNN Fear & Greed Index – Neutral The Fear & Greed Index is at 45, down from 63 last week. F&G operates on a 1-100 scale, and a reading of 45 is neutral. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that just 23.9% of individual investors are bearish, down from 32.7% last week. This 23.9% reading is well below the 38.5% long-term average, and is the lowest level since November 3, 2016 — the week before the Presidental election. 4) CBOE Equity Put-Call – Neutral The CBOE Equity-Put Call ratio was at 0.73 yesterday with a 3-day moving average of 0.62. That 0.73 number above historical norms, but this number was also very, very low from Friday to Tuesday, so we’ll call it Neutral. 5) ISE Sentiment – Neutral The ISE Sentiment Index closed at 88 yesterday (88 calls bought for every 100 puts). The 10 day moving average is 94.2. These numbers show higher put demand, but they’re actually in-line with recent averages, so I’ll also lump it in as neutral. Conclusion Out of 5 sentiment indicators, we have: 0 bullish (down from 2 last week) 3 neutral (up from 2 last week 2 bearish (up from 1 last week The question everyone’s asking is obvious: is there enough fear in the market? Now, sentiment is undoubtedly more bearish this week, perhaps best illustrated by the spiking VIX and its nearly inverted curve. However, I’m not sure sentiment is bearish enough to immediately form a bottom. The CBOE equity put-call ratio did spike to 0.73. That’s a mark of fear — but it’s not an extreme level. It actually hit 0.96 in mid-April. I’d love to see a spike above 0.90, and a dip in the ISE Sentiment Index as well. That would mean traders are aggressively buying put options for downside protection/speculation purposes, which is what you see at the point of maximum fear. In hindsight, that 9.56 extreme low in the VIX may have been a sign of true froth. At the time, other sentiment indicators were pointing bearish, but at that point, traders were pricing in almost no volatility, and thus no fear. Now we’re about to see if the volatility train is ready to leave the station after 6 months of nothing.
Continue Reading -->What Wild Boar Hunting, Triathlons, and Racquetball Can Teach You About Trading
Trading is like anything else worth doing. If you want to be good, you’ve got to develop discipline, patience, and mental toughness. Now, you can learn plenty about trading by watching screens and reading books… but sometimes, the very best lessons come on mile 25 of a marathon… or when a 200-pound boar is charging you at full speed. So we sat down with several of our trading experts to talk about the lessons they’ve learned far way from their charts and spreadsheets. Here are their stories. Brandon Perry on Hunting Wild Boars Here in Texas, we love the taste of wild boars. But wild boars love the taste of crops, grazing fields, wildlife, and private property. Smithsonian magazine said they’re “among the most destructive invasive species in the United States today,” doing $400 million worth of damage in Texas annually. I have a rancher friend who invites me to help take care of his problem with wild boars. We start with weather patterns. If it’s rainy, the boars spread out and won’t be concentrated around a water source. In the winter, food gets scarce and they move away from acorn-rich oak trees to lowland valleys with rich sources of grass and grubs. In the summer, they stay out of the brutal Texas heat during the day. That’s my macro analysis. Next, I have to drill down to analyze my specific target. Boars are probably the most dangerous wild land animal in Texas. They have razor sharp tusks and they’re not afraid to take on humans. One time on a hunt, we came across a 200+ pound boar. We’re talking a big ugly beast right out of a horror movie. We saw it and it saw us. Usually they run away. This boar didn’t. He turned toward us and started sauntering toward us. We had a choice. We could run or shoot. My friend took a shot with his AK-47. Now you may think having an AK-47 made this an unfair fight. But boars are very, very tough, with with inch-thick skin and a cranial bone that can deflect bullets. The first shot only made it turn. The second took it down. In hunting, there are a few very important rules to follow. Only take a sure shot Don’t be afraid to pass on a shot Don’t rush your shot. These rules also apply to trading. For example, I love trading washout lows, but it’s not easy. I have to make sure the technicals are right. And when I have my target picked out, I can’t rush in. I need to wait until the odds are in my favor. If things go wrong, I need enough room to exit the situation to minimize risk… whether I’m looking at a charging stock or a charging boar. When trading lows, you have a brief moment for action, and then the opportunity is gone. But in trading, like hunting, opportunities always come around again. So don’t rush to pick a shot. You’ll get another. Brandon is a contributor to the Virtual Trading Floor®. Click here for a 14-Day FREE Trial. Scott Redler on Triathlons If you want a better brain, build a better body. One of the biggest factors in my trading success has been competing in 100+ triathlons and marathons, including 2 Ironman events. When I started doing triathlons, my trading profits went through the roof for 2 reasons. First, I suddenly had fewer hours in the day. That may seem a little counter intuitive, but hear me out. To balance my trading career and family time with triathlon training, I was forced to become more focused. I started getting up earlier, partying less, and most importantly, I learned the power of a routine. Instead of flying by the seat of my pants, I started every trading day with a comprehensive plan. That’s why I’m so adamant about daily game planning. If you don’t have a plan, you end up wasting all your time and energy trying to figure out what to do! When you start your day with a plan, you can keep your eyes on the prize and not waste your time with distractions. And the second reason endurance training is valuable is that it builds mental toughness. You learn that you’re capable of a lot more than you think. When you start out running, running a mile or two may seem impossible. And then you read about Fauja Singh, a man who ran his first marathon at 89! So find an outlet that pushes you physically. It could be an Ironman. Or it could be a walk around the neighborhood, a martial art, or pushups in the office at lunch. Just do something. Click here to learn about Redler Ultimate Access, Scott’s new trader training program. Mark Harila on Racquetball I’ m a trader and a racquetball player. After a day sitting in the office staring at charts, I love the physicality of racquetball. Getting your heart rate up and losing yourself in the game is a great way to let the tensions of our profession go by the wayside. The comradery I have with other players and random little moments of levity really bring me back down to Earth. There are many parallels between racquetball and trading. There’s often a furious pace of play that requires instant analysis. On the court, you must assess: Where the ball is now Where it is likely to go Where the other players are Where to set yourself up in order to best take advantage of the situation In trading, you must assess: Where the price action is now Where it is likely to go Where support and resistance (other players) are Where to find your entries to take advantage of the price action Novice racquetball players are desperate to hit the ball to score points. So they’ll chase after the ball once it has passed them, rather than running to a spot that will give them an opportunity. They take wild shots, swinging and missing repeatedly, because they don’t plan, and don’t know
Continue Reading -->Weekly Sentiment Update: The Bulls Come Out to Play
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. But let’s look at the actual numbers to see how the crowd actually feels. Last week, sentiment was very bearish, and I said “I think SPX makes new all-time highs above 2401 by Monday at 9:45 a.m. ET.” And indeed, in the aftermath of Emmanual Macron’s victory in France, the SPX did indeed squeeze to a new record high at 2401.36 at 9:35 a.m. ET. That was followed by another all-time high on Tuesday at 2403.87 before the market fell back into the range. So let’s take a fresh look at sentiment and figure out whether the bears are still growling. (click here for a primer on these 5 sentiment indicators) 1) VIX Spread – Bullish The VIX is at 10.70 this morning after hitting new 10-year lows earlier in the week. The 3-month spread is at 3.7, which means that traders are moderately bullish. 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 63. F&G operates on a 1-100 scale, and a reading of 63 means traders are moderatly bullish. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 32.7% of individual investors are bullish, down from 38.1% last week. This is below the long-term average of 38.5%. 4) CBOE Equity Put-Call – Neutral The CBOE Equity-Put Call ratio was at 0.65 yesterday with a 3-day moving average of 0.63. This indicates that traders are neutral. 5) ISE Sentiment – Neutral The ISE Sentiment Index is at 97 as of late morning (97 calls bought for every 100 puts). The 10 day moving average is 87.6. So the recent trend shows higher put option demand. However, I’ll consider this number neutral because it’s actually risen a bit in the past couple of weeks. Conclusion Out of 5 sentiment indicators, we have: 2 Bullish (up from 1 last week) 2 Neutral (unchanged from last week 1 Bearish (down from 2 last week Traders looked pretty negative last week ahead of the April jobs numbers and the French election results, but they’ve swung to moderately bullish this week. Looking forward, we’ll probably need a meaningful surge above the new 2403.87 record high to push the market into full-on froth category. But to be fair, for 2 reasons, it could be argued that froth already set in: 1) The VIX hit 9.56 earlier this week the lowest level since February 2007 2) There’s just no volatility because the shallowest of dips keep getting bought But let’s play it by ear. Low-volatility stretches can go on for a long time before anything changes.
Continue Reading -->Volatility Hits a 55-Year Low: Is a Trump Slide Coming?
On Monday, I provided an in-depth analysis of the post-election collapse in volatility, just as the VIX was hitting levels not seen since February 2007. In that piece, I focused on day-to-day volatility of the S&P 500. Now, I’m going to take a look at intraday volatility. I used a very simple but effective formula to make my judgements. I took the day’s range (the high minus the low) and divided it by the prior day’s close Since 1950, the S&P has had an average intraday range of 1.2%. Since 2000, the average intraday range has been 1.4%. In 2016, that number was 1.0%… up until the election. And after the election, it dropped to just 0.6%. So just as day-to-day volatility dropped, intraday volatility has dropped just as much. Now here’s where things get really interesting… We’ve had 125 trading days since the election, with an average intraday range of 0.584% — half the long-term 1.2% average. (as of 1:00 p.m. ET) The last time we’ve had a 125-day stretch with so little intraday movement was March 19, 1962! If you’re falling asleep… you have good reason. And oh yeah — the S&P had a rough time after March 19, 1962. It closed at 70.85 that day, and fell to 52.83 on June 27. The market’s dip in 1962 was deemed “The Kennedy Slide.” Heck, there was even a Flash Crash on May 28, 1962, with the Dow falling 5.7%. Could we see a similar Trump slide? I guess it’s possible, mostly because it’s not uncommon for a bear market to be proceeded by a low volatility stretch. To balance that, I’ll issue my usual caveat: a sample size of 1 means absolutely NOTHING, and I do this kind of research mostly for entertainment purposes. And to be even more clear: I’m not rushing to get short the market in anticipation of a big drop. But for fun, let’s look at some historic parallels. The JFK Library said this about President Kennedy: John Fitzgerald Kennedy captured the Democratic nomination despite his youth, a seeming lack of experience in foreign affairs, and his Catholic faith. And in 2016, Donald Trump completely smashed the Republican establishment despite having zero political experience. Sheer charisma played a big role in each man’s victory. And in both elections, the market rallied after the result. What about geopolitical tensions? Kennedy had the Bay of Pigs Invasion in 1961 followed by the Cuban Missile Crisis in 1962. In 2017, we’ve got Russia, Syria, ISIS, etc. That’s quite a few coincidences to content with…
Continue Reading -->The Rise of Donald Trump and the Collapse of Volatility, by the Numbers
With the VIX hitting 9.69 today — a level not seen since February 2007 — I wanted to get an idea of just how slow the market is moving. To do so, I analyzed daily S&P 500 price data going back to 1950. Since November 9, 2016, the first trading day after President Trump’s victory, the S&P has moved an average of 0.3%* per day. (*percentages expressed in this article represent the daily percentage change expressed on an absolute basis. So if the market moves -1% on Monday and +1% on Tuesday, the average move is 1%) But going back to 1950, the daily average move is 0.7%! And here’s another funny stat. The average daily move in 2016 BEFORE Trump’s victory was 0.6% — pretty close to that long-term 0.7% average. So my 6th grade math proves that volatility collapsed after the election, even though we’ve had no shortage of market-moving news, between the Fed, French elections, Syria, North Korea, Trump/legislation, etc. Now let’s look at 1% daily moves. We’ve had 122 trading days since the election. And the S&P has moved 1% or more exactly 5 times. That’s 1 out of every 24.4 days. In 2016, before the election, the S&P was moving 1% once every 4.7 days. Long term, the S&P had 1% moves every 4.9 days. So we used to have a big move once a week. Now we’re getting them once a month… if we’re lucky. But what’s really interesting is that we also saw an extended period of low volatility prior to the last bull market peak on October 11, 2007 — though it wasn’t as quiet as this one. From January 1, 2007 to October 11, 2007, the market moved an average of 0.5% per day. 2006, a remarkably sedate year, also had an average daily move of 0.5%. So are we seeing parallels between 2007 and 2017? Maybe. Just remember this: if you’re drawing parallels between 2007 and 2017, you’re talking about a sample size of exactly 1. That’s not exactly scientific. So who’s to blame for the lack of volatility? ETF’s? Runaway algos and high frequency trading programs? Trump himself? Newly confident CEO’s that love slamming the buyback button? The Alphabet Soup Gang? (the Fed, ECB, BoJ, BoE, etc.) All of them? If you have the answer, let me know when I wake up…
Continue Reading -->Weekly Sentiment Update: Why the Bears May Fuel New All-Time Highs
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. But let’s look at the actual numbers to see how the crowd actually feels. Last week, the overall mood of traders shifted to neutral from the prior week’s extreme bearishness. With the healthcare vote, earnings from AAPL/AMZN/FB/TSLA, and the April nonfarm payrolls report out of the way, let’s see how traders are feeling ahead of this weekend’s French election. (click here for a primer on these 5 sentiment indicators) 1) VIX Spread: Bullish The VIX dropped under 10 this morning, and the 3-month spread is at +3.98. This means that traders are fairly bullish. 2) CNN Fear & Greed Index: Neutral The Fear & Greed Index is at 45, down from 48 last week. F&G operates on a 1-100 scale, and a reading of 45 means traders are neutral. 3) AAII Sentiment: Neutral The latest AAII Sentiment Survey shows that 38.1% of individual investors are bullish,basically unchanged from last week. This is right in-line with the long-term average of 38.5%. 4) CBOE Equity Put-Call: Bearish The CBOE Equity-Put Call ratio was at 0.77 yesterday with a 3-day moving average of 0.69. This indicates that traders are bearish. 5) ISE Sentiment: Bearish The ISE Sentiment Index is at 65 as of the Thursday close (65 calls bought for every 100 puts). The 10 day moving average is just 88.2. So the recent trend shows higher put option demand. The big drop ahead of Friday’s NFP report has me slotting this number in at bearish. Conclusion Out of 5 sentiment indicators, we have: 1 bullish 2 neutral 2 bearish So traders have gotten more negative since last week, when we had 1 bullish, 4 neutral, and 0 bearish sentiment indicators. Last week, I wondered whether sentiment was about to go full-on bullish, but we saw precisely the opposite occur. Traders actually got more bearish, which is vert encouraging for the bulls. Judging by yesterday’s surge in put option demand (as indicated by the CBOE equity put-call ratio and the ISE Sentiment Index), traders were hedging aggressively for today’s NFP report and this weekend’s French election. This means there’s a lot of bearish bets that will need to be unwound in a jiffy if we get a Macron victory in France. I don’t think Marine Le Pen can be counted out until the final vote is tallied, but it certainly looks like Macron is in the driver’s seat. Call me crazy, but I think SPX makes new all-time highs above 2401 by Monday at 9:45 a.m. ET. (not that 8 points is a meaningful move in the grand scheme of things…)
Continue Reading -->Our 10 Top Articles of April 2017
With April 2017 coming to a close, let’s take a quick look back to our 10 most popular articles of the month, as judged by our internal website statistics. We’ve got everything from education on the VIX to technical analysis tips to Scott Redler’s latest appearance on CNBC’s Fast Money. Enjoy them! 10) What is the VIX? And How Can I Trade It? – April 20 Learn the basics of the VIX, and how you can trade instruments based on the VIX. 9) How the 3-Bar Rule Can Help You Deal with Failed Setups – April 10 Learn to avoid setups that look like they are triggering, but actually fail. 8) Oh Snap! A Unique Options Opportunity Presents Itself – April 18 Snap options looked unusually priced ahead of the May earnings report, presenting an opportunity to place an interesting options trade. 7) Jeff Cooper: Gold $1262 Is the Level to Watch – April 10 Jeff Cooper breaks down the levels you need to be watching in gold. 6) 9 Tips for Picking the Right Stocks for Swing Trading – April 4 As a swing trader, one of the most important decisions you’ll every make is choosing which stocks to trade in the first place. 5) How to Use the VIX Curve to Judge the Market’s Mood – April 17 The VIX isn’t very useful as a market indicator. But looking at the curve can tell you a lot about the market’s mood. 4) 7 Interviews with 7 Top Traders – April 1 Get to know 7 of our top traders, including Sami Abusaad, Kurt Capra, and Mark Harila in this exclusive interview series. 3) Jeff Cooper: Why a Big League Market Reversal Could Happen – April 6 Technical analysis maestro Jeff Cooper identifies market levels that could signal a major change in trend. 2) 17 Killer Tips Every Momentum Trader Should Know – April 3 Most successful traders are highly disciplined. So to help you get better momentum trading results, we’ve put together a list of 17 handy rules that will keep you out of trouble. 1) Scott Redler: 4 Charts You Need to See – April 10 Scott Redler laid out his case for the banks on CNBC’s Fast Money. Here are the 4 charts he used to break down the action.
Continue Reading -->Weekly Sentiment Update: The Bears Are Disappearing!
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. Neither side ever provides real evidence of their views. But let’s look at the actual numbers to see how the crowd actually feels. Last week, traders were undeniably bearish. Specifically, they were loading up on put options like there was no tomorrow, which provided a ton of upside fuel after Macron scored a victory in the first round of the French Presidential election. So let’s see if sentiment has lifted with this week’s surge, which drove the Russell 2000 and Nasdaq to fresh all-time highs. (click here for a primer on the 5 sentiment indicators listed below) 1) VIX Spread – Bullish The VIX has dropped like a rock this week, and the 3-month spread is at 3.27. This means traders are moderately bullish. 2) CNN Fear & Greed Index – Neutral The Fear & Greed Index is now at 48, up from just 34 last week. F&G operates on a 1-100 scale, and a reading of 48 is smack in the middle, meaning traders are neutral. 3) AAII Sentiment – Neutral The latest AAII Sentiment Survey shows that 38% of individual investors are bullish, a huge jump from last week’s 25.7% reading. While this is a major jump, it’s right in-line with the long-term average of 38.5%. So it’s neutral. 4) CBOE Equity Put-Call – Neutral The CBOE Equity-Put Call ratio was at 0.63 yesterday with a 3-day moving average of 0.62. This indicates that traders are neutral. This is a pretty big decline from late last week, when traders were scooping up puts like there was no tomorrow. 5) ISE Sentiment – Neutral The ISE Sentiment Index is at 92 (92 calls bought for every 100 puts). The 10 day moving average is just 88.4. So the recent trend shows higher put option demand. However, I’ll actually call this neutral because the ISE Sentiment index has been so down for so long that I’ll count these readings as neutral. One thing to keep in mind: for the past few months, I’ve found that the ISE Sentiment Index hasn’t been terribly helpful in terms of judging sentiment. I believe its measurement methodology is very well thought-out, but even so, the results haven’t been all that helpful. I wrote more about that topic here. So I’m taking the time to consider swapping it out with another indicator. Conclusion Out of 5 sentiment indicators, we have: 1 bullish 0 bearish 4 neutral This is a big change from last week, when we had 0 bullish, 4 bearish, and 1 neutral. So we went from stretched markets with bearish sentiment, to even more stretched markets with neutral sentiment. Now, the big question is whether sentiment’s about to go full-on bullish. We’ll know more tomorrow. After the close today, we’re getting an avalanche of earnings from the likes of Google (GOOGL), Amazon (AMZN), Starbucks (SBUX), and Intel (INTC), all of which are major Nasdaq components. Incidentally, those reports should also dictate whether SPX is about to vault over the prior 2400.98 all-time high set on March 1. And don’t forget, #1 index heavyweight Apple (AAPL) reports on Tuesday, and it too will play a key role in the near-term action. So keep an eye out — if we get stronger equity market action in the next few days, sentiment could head to full-on froth!
Continue Reading -->French Fried Bears: They’re What’s for Dinner!
The market is certainly pleased with the first round of the French Presidential Election. Emmanuel Macron scored a victory and is apparently in the driver’s seat to win the May 7 runoff against far-right populist Marine Le Pen. Le Pen supports a vote for a French exit of the election, and assuming Macron wins, a so-called “Frexit” may be off the table. I wouldn’t count Le Pen completely out just yet though. We’re still living in an era with the Brexit, President Trump, and Italy’s ‘No Vote.’ So anything is possible. Today, the SPX is up 1% and within striking range of the 2401 all-time high. XLF is up 2.4%. The euro is up 1.3% against the dollar. The French CAC 40 index is up 3.9%. And the VIX is down a whopping -23%. So why is this happening? Why are we making such a big move? It’s simple: the bears built a big, big fire. And then they fell in it. Last Thursday afternoon, I pointed out that trader sentiment was looking very bearish heading into the weekend election. As you probably now, the permabears have been out in force saying that everyone’s complacent. But the numbers showed otherwise. For example, the American Association of Individual Investors showed that just 25.7% of individual investors are bullish. That’s well below the long-term average of 38.5%. And as of Friday’s close, the 10-day moving average of the CBOE Equity Put-Call Ratio was 0.703, indicating that traders had been stocking up on puts ahead of the weekend. The last time it was that high was February 8, 2017, when SPX closed at 2294.67. The index then hit 2400.98 on March 1. And then, there’s the ISE Sentiment Index, which measures call options demand relative to put option demand using only opening long customer transactions. (market maker and firm trades are excluded) Its daily average has been just 84 this year, or 84 calls bought for every 100 puts. That’s well below long-term average readings. So there was certainly no shortage of bears heading into the weekend. (h/t to Marc Eckelberry for pointing this stat out on the Virtual Trading Floor® (VTF). And when you get a lot of bears bracing for a negative outcome — like a Le Pen victory — that means there’s ample fuel for a rally if the news is positive, or even neutral. The Lesson to Be Learned High stock prices and valuations do not necessarily equate to bullish sentiment. At its root, a bull market happens when there are consistently more optimists (buyers) than (pessimists) sellers. But even with us within 2% of all-time highs, the data shows that there’s still an awful lot of folks that are braced for downside. It doesn’t seem to make a whole lot of sense… but when is anything involved with the market perfectly logical?
Continue Reading -->