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Weekly Sentiment Report: Traders Are Pretty Darn Neutral
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. Neither side ever provides evidence for their views. So I regularly run through a wide variety of sentiment measures to get an accurate reflection of the market’s mood. According to 6 sentiment measures I track, traders appear to be shockingly… neutral. Seriously, when I mash all the data together, I get a crowd that looks split right down the middle between bulls and bears. 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 9.6 point skew in implied volatilities on the options. That’s the 88th percentile. So relative to calls, traders are paying more for 10% OTM 6 month puts than they have 88% of the time over the past 5 years. 2) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 28.8% of individual investors are bullish, well below the long-term average of 38.5%, and below the 2016 YTD average of 28.1%. Bearish sentiment is at 27.9%,down huge from last week, and slightly lower than the 30.3% long-term average. 3) Wall Street Strategists – Neutral The average year-end target price for the S&P 500 is 2171, according to Bloomberg. That implies a 1% gain into year-end. 4) ISE Sentiment – Neutral The ISE Sentiment Index closed at 130 yesterday (130 calls for every 100 puts). This is a bullish reading And its 10 day moving average is just 94 — a level that typically indicates modest bearishness. So we’ll call it neutral. 5) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio was 0.66 yesterday, which is just below the YTD average of 0.58. This points to slightly bullish sentiment. 6) Investors Intelligence – Bullish Yesterday, the Investors Intelligence Survey of newsletter writers showed a slight increase in bullishness to 46.7%. This is high relative to long-term averages. Bears fell to a 3-week low to 22.8%. ********* So we have 2 bearish indicators, 2 neutral indicators, and 2 bullish indicators. Blend them together and you have a crowd that looks pretty darn neutral. I’m hearing a lot of bears say that everyone’s complacent… but who are they talking about?
Continue Reading -->The Morning Hammer: Tension Is On the Tape
European equities are down again this morning on bank weakness. German Chancellor Angela Merkel ruled out state assistance for Deutsche Bank (DB) before next year’s national election, which is hitting the stock hard, and in turn, other European banks. DB faces a $14 billion bill from the Department of Justive related to MBS activities during the bubble. They are appealing, but shareholders are very concerned that the bank will have to raise cash. The Euro Stoxx 600 is down -1.4% with financials down -2.0%. The drama is driving demand for safety assets, and the yen, (BTW, you should read Kurt Capra’s great work on USDJPY) German bunds, and US Treasuries are ticking higher. Crude oil is near $45 after Algerian Energy Minister Noureddine Boutarfa said Sunday that Saudi Arabia offered to cut production to January levels. But keep in mind that oil headlines are running wild ahead of the OPEC meeting this week, which is an “anything goes” event. German business sentiment hit a 2-year+ high. However, UK mortgage approvals dropped sharply in August. The Bank of Japan reported that corporate cash and household deposits hit an all-time high as business and consumers remain reluctant to spend. On the deal front, CBOE (CBOE) is buying BATS Global (BATS) for $3.2 billion. Funny, last week there was a rumor that CBOE itself could be in play — but I guess someone got their wires crossed. Tonight, we’ll have the first Presidential debate between Hillary Clinton and Donald Trump. If either candidate gets a decisive victory, we could see a real move in biotech tomorrow. (down if Clinton wins, up if Trump wins) SPX futures are down in the early going, and I guess we’re going to see if bears are ready to make a real stand. Friday was a modestly ugly day, but the bears have been flopping bretty bad since June. It’s hard to tell when that will stop, but tension is starting to build on the tape again.
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