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