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Weekly Sentiment Update: The Broken Permabear Clock Is Finally Right!
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 after what may have been a change in complexion yesterday. With hot momentum stocks like NVIDIA (NVDA) and Tesla (TSLA) taking beatings, let’s measure the market’s mood for insights on where things may go: 1) VIX Spread – Bullish The VIX is ticking up, but the 3-month VIX spread is at +3.83, which indicates traders are still not concerned with volatility. This is a bullish reading. 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 75. F&G operates on a 1-100 scale, and 75 is in extreme greed territory. 3) AAII Sentiment – Neutral The latest AAII Sentiment Survey shows that 38.5% of individual investors are bullish, which is right in-line with the long-term average of 38.5%. This is Neutral. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio is at 0.62 with a 3-day moving average of 0.61. This indicates higher-than-average bullishness. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at just 92 (92 calls for every 100 puts) this afternoon – 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 3 bullish, 1 neutral, and 1 bearish. Plus, keep in mind that the ISE Sentiment Index seems to always read bearish no matter what’s going on in the market. So that 1 bearish indicator doesn’t count for much. So just as a broken clock is right twice a day, the permabears are now right: traders are indeed very bullish right now. And when bullish sentiment meets stretched technicals, the bears tend to have a better chance at mounting successful attacks.
Continue Reading -->Weekly Sentiment Update: That Is a Moderate Bull I See!
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 +3.65, which indicates traders are not very concerned with volatility This is a bullish reading. 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 80. F&G operates on a 1-100 scale, and 80 is in extreme greed territory. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 33.1% of individual investors are bullish, which is below the long-term average of 38.5%. This indicator is slightly bearish. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio is at 0.58 with a 3-day moving average of 0.57. This indicates higher-than-average bullishness. 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 77.3. This also indicates bearish sentiment. Conclusion Out of 5 sentiment indicators, we have 3 bullish and 2 bearish. Interestingly enough, the VIX spread has contracted from 5 to 3.65 over the past week, which implies that options market players are backing off their bullish bets a bit. And the ISE Sentiment Index implies that traders are still buying plenty of downside protection, though to be fair, that indicator seems to be losing predictive value. This could be because of Trump-related uncertainty. So overall, traders appear moderately bullish.
Continue Reading -->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 -->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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