T3 Live
Shares

Did Breaking SPX 2500 Put a Spell on the Bulls?

Shares

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.

Leave a Comment: