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Weekly Sentiment Update – Traders Actually Look Bullish!
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. Neither side provides evidence for their views. So let’s see how traders are feeling into today’s inauguration: 1) VIX Spread – Bullish The 3-month VIX spread is at +5, which indicates traders are not concerned with volatility. This is a bullish reading. 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 67. F&G operates on a 1-100 scale, and 67 indicates that traders are moderately bullish. 3) AAII Sentiment – Neutral The latest AAII Sentiment Survey shows that 35.8% of individual investors are bullish, which is below the long-term average of 38.5%. This is basically neutral. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio is at 0.69 with a 3-day moving average of 0.73. This indicates higher-than-average bearishness. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at just 85 (85 calls for every 100 puts) this afternoon – which is a bearish reading. And the 10-day moving average is 79.2. This also indicates bearish sentiment. Conclusion Out of 5 sentiment indicators, we have 2 bullish, 1 neutral, and 2 bearish signs. Now this seems neutral, but I’d argue that traders are actually leaning bullish. Why? Because options-based indicators (notably the ISE Sentiment Index) have become fairly detached from equity markets. Using sentiment as a signal for buys/sells is often a bad idea. And in the case of these options indicators, they seem to be losing value as times go on.
Continue Reading -->There Are More Bears Than Bulls Out in the Wild
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. Neither side provides evidence for their views. So let’s see how traders are feeling into today’s inauguration: 1) VIX Spread – Bullish The 3-month VIX spread is at +4.51, which indicates traders are pricing in very low near-term volatility. This means traders are bullish. 2) CNN Fear & Greed Index – Neutral The Fear & Greed Index is at 49. F&G operates on a 1-100 scale, and 50 is neutral. So we’re right in the middle. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 32.8% of individual investors are bullish, which is below the long-term average of 38.5%. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio is at 0.71 with a 3-day moving average of 0.74. This indicates higher-than-average bearishness. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at just 79 (79 calls for every 100 puts) this morning – which is a bearish reading. And the 10-day moving average is 81.3. This also indicates bearish sentiment. Conclusion Out of 5 sentiment indicators, we have 1 bullish, 1 neutral, and 3 bearish. I’ve been hearing a lot of chatter about how bullish the crowd is. But if anything, traders are leaning against the market, hoping for a fall.
Continue Reading -->Newsflash: This Stock Market Is Not Loved
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. Neither side likes to provide evidence for their views. So I regularly run through a wide variety of sentiment measures to get a realistic reflection of the market’s mood. According to 7 sentiment measures I track, traders are slightly bearish, even though we’re within 1% of the all-time SPX high. Let’s go through them one by one: 1) SPX Options Prices – Bearish SPX options prices show a high put skew. I looked at 10% out-of-the money 6-month SPX options. There is currently a 10 point skew on the puts, which is the 98th percentile for the past 5 years. So relative to calls, traders are paying more for 10% OTM 6 month puts than they have 98% of the time over the past 5 years. 2) ISE Sentiment – Bearish The ISE Sentiment Index closed at just 63 yesterday (63 puts for every 100 calls). And its 10-day moving average is just 81.1 — a level that indicates bearishness. Markets tend to overheat with 10-day MA readings well over 100, so we’re not even close to that. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 24.8% of individual investors are bullish. This is well below the long-term average of 38.4%, and below the 2016 YTD average of 28.1%. Bearish sentiment is at 38.3%, the highest it’s been since the February 11 bottom, when it spiked to 48.7%. 4) Investors Intelligence – Neutral Yesterday, the Investors Intelligence Survey of newsletter writers showed the 4th straight decline in bullishness with a drop to 44.6% bullish from 49% last week. Bears are at a 10-week high at 24.3%. 5) CBOE Equity Put-Call – Neutral The CBOE Equity-Put Call ratio was 0.63 yesterday, which is above the YTD average of 0.5, and right in-line with the 5-year average of 0.65. This points to neutral sentiment. 6) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 61, which is modestly in the ‘Greed’ category. F&G operates on a 1-100 scale, and 50 is neutral) 7) Wall Street Strategists – Bullish The average year-end 2017 target price for the S&P 500 is 2391.44, according to Bloomberg. This implies a 9.7% gain from here — basically in-line with historic stock market averages. ********* So we have 3 bearish indicators, 2 neutral indicators, and 2 bullish indicators. Blend them together and you have a slightly bearish crowd. I’m hearing a lot of bears saying that everyone’s complacent… but I just don’t see it. P.S. Interested in prop trading? Sign up for today’s FREE webinar and find out if a prop career makes sense for you.
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