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Weekly Sentiment Update: The Bears Are Still Raging!
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. But let’s look at the actual numbers to see how the crowd actually feels. Last week, traders were definitely feeling bearish. We had an inverted VIX curve, big put option demand, and significant negativity among individual investors. Now that the S&P 500 is slamming up towards last week’s highs, let’s take a fresh look at the numbers. 1) VIX Spread – Bearish The VIX is dropping, and the 3-month spread is at +1.0. This shows that traders are moderately bearish. Related: read our primers on VIX basics and VIX curves. 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 34, up slightly from 28 last week. F&G operates on a 1-100 scale, and a reading of 34 means traders are moderately bearish. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 25.7% of individual investors are bullish, down from 29% last week. This is well below the long-term average of 38.5%. 4) CBOE Equity Put-Call – Neutral The CBOE Equity-Put Call ratio was at 0.70 yesterday with a 3-day moving average is 0.64. This is indicates that traders are basically neutral. I expect this number to shrink by today’s close. 5) ISE Sentiment – Neutral The ISE Sentiment Index is at 92 (92 calls bought for every 100 puts). The 10 day moving average is just 84.4. So the recent trend shows higher put option demand. However, I’ll actually call this neutral because the ISE Sentiment index has been so down for so long, that today’s 92 reading actually counts as pretty neutral activity. Please note: I am strongly considering dumping ISE Sentiment from this weekly update simply because it’s almost always reading bearish no matter what happens in the market. I may replace it with the CBOE Skew Index, which measures how much traders are paying for protection against tail risk. Conclusion Out of 5 sentiment indicators, we have: 0 bullish 3 bearish 2 neutral We’re not seeing much change from last week’s sentiment report. So my market thesis is unchanged too — I think we could be stuck in a range for a while, though I’ll add I see a better chance of a breakout to new all-time highs than a sharp decline. The current action is reminiscent of last summer, when we consistently had mixed-to-bearish sentiment and stock prices that looked stretched. The result was a seemingly endless sideways grind, because bearish sentiment and high valuations are a good recipe of a whole lotta nothing. The bear case remains the same — what goes up must come down. So the question is whether market volatility has been low enough for a long enough time for a trend change to actually occur. When that changes, I don’t know. But the fact that traders are so bearish implies that the snoozefest could go on for quite a while.
Continue Reading -->Weekly Sentiment Update: The Bears Were on Patrol, Even Before Syria and the Weak Jobs Report
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. But let’s look at the actual numbers to see how the crowd actually feels. With the US missile attack on Syria and the NFP report miss, now is the perfect time for a sentiment update. Last week, the bears were out in force as we digested near all-time highs. But with the bulls still holding steady, let’s see if anything’s changed. 1) VIX Spread – Neutral The VIX spiked a bit post-Syria, but interestingly enough, it’s now DOWN on the day — even after the NFP miss. That has the 3-month VIX spread is at +2.16 which indicates that traders are starting to grow skittish. Readings around +2 are neutral. 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 43, up slightly from 34 last week. F&G operates on a 1-100 scale, and a reading of 43 means traders are moderately fearful. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 28.3% of individual investors are bullish, down from 30.2% last week. This is well below the long-term average of 38.5%. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.66 yesterday with a 3-day moving average is 0.63. This is indicates that traders are slightly bearish. 5) ISE Sentiment – Neutral The ISE Sentiment Index is at 108 (108 calls bought for every 100). The 10 day moving average is just 90. This indicates that demand for put options continues to outstrip that for calls. However, I’ll actually call this neutral because the ISE Sentiment index has been so down for so long that 90 is actually high relative to recent history. Please note: I am strongly considering dumping ISE Sentiment from this weekly update simply because it’s almost always reading bearish no matter what happens in the market. I may replace it with the CBOE Skew Index, which measures how much traders are paying for protection against tail risk. Conclusion Out of 5 sentiment indicators, we have: 0 bullish 3 bearish 2 neutral This shows even more bearishness than last week. Note that the all of these indicators except for the VIX spread, were released BEFORE the attack on Syria and the nonfarm payrolls miss. So it’s not like the market was necessarily braced for good news, even though traders were optimistic about NFP because of the recent ADP and jobless claims beats. It is indeed possible that the next readings of the 4 others may grow more bearish in the near future. And interestingly enough, the SPX just slipped into the green, thoguh small caps and banks are underperforming. It should be an interesting day, to say the least…
Continue Reading -->Weekly Sentiment Update: The Bears Are Growling, But No One’s Listening
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. But let’s look at the actual numbers to see how the crowd actually feels. Last week, bears started sneaking out of their caves just in time for Spring. And with the bulls continuing to hold steady in the face of doubt, let’s see if anything’s changed. 1) VIX Spread – Bullish The VIX spiked to 15 early Monday, but it’s back down under 12. That has the 3-month VIX spread is at +2.69 which indicates that traders are moderately bullish. 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 34, up slightly from 30 last week. F&G operates on a 1-100 scale, and a reading of 34 means traders are bearish. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 30.2% of individual investors are bullish, down from 35.3% last week. This is well below the long-term average of 38.5%. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.64 yesterday with a 3-day moving average is 0.67. This is indicates that traders are slightly bearish. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at 83 (83 calls bought for every 100). The 10 day moving average is just 90. This indicates that demand for put options continues to outstrip that for calls. However, I am strongly considering dumping ISE Sentiment from this weekly update simply because it’s almost always reading bearish no matter what happens in the market. I may replace it with the CBOE Skew Index, which measures how much traders are paying for protection against tail risk. Conclusion Out of 5 sentiment indicators, we have: 1 bullish 4 bearish 0 neutral This shows even more bearishness than last week. So while the bears are pushing an age-old theme — everyone’s complacent — I’m getting the feeling that traders are waiting for another shoe to drop, even though we’ve seen improvement in the action below the surface. Yesterday, the Nasdaq and Russell showed relative strength, and on Tuesday, we saw great upward action in the banks. So while some of the so-called “Trump Trade” has unwound itself, the bears’ growing isn’t adding up to much. But there’s an important question to ask here: how can sentiment be bearish if the SPX is 2% from all-time highs? We’ve seen this over and over throughout the bull market — markets hovering near record highs, but sentiment reading negative. My guess is that there’s inherent distrust in the market, and traders are eager to turn bearish on even small declines. And those that are buying often appear to be doing so reluctantly. It’s more of a “I might as well buy” attitude than “I’m buying because we’re going straight to SPX 3000.” And that’s a big difference from the last two bull markets.
Continue Reading -->Weekly Sentiment Update: The Bears Are Done Hibernating… and They’re Hungry
Permbulls always say everyone’s bearish. And permabears always say everyone’s bullish. But let’s look at the actual numbers to see how the crowd actually feels. Last week, sentiment went neutral for the second straight week. The big news this week is today’s healthcare vote (well, let’s hope we get it over with it), so let’s see if traders 1) VIX Spread – Bullish The 3-month VIX spread is at +2.6 which indicates that traders are moderately bullish. However, this number has been sliding steadily as traders slowly price in more volatility. 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 30, down from 53 last week. F&G operates on a 1-100 scale, and a reading of 30 means traders are bearish. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 35.3% of individual investors are bullish, which is just below the long-term average of 38.5%. It’s close enough to the middle to cal 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.67 yesterday with a 3-day moving average is 0.73. This is indicates that traders are bearish. 5) ISE Sentiment – Neutral The ISE Sentiment Index is at 101 (101 calls bought for every 100). So there are a ton of post-Fed call buyers. , which is a bullish reading. The 10 day moving average is just 89.7, up from 83 last week.This indicates strong demand for put options, but the ISE has been extraordinarly low forever, and 89.7 is pretty high compared to recent readings. Conclusion Out of 5 sentiment indicators, we have: 1 bullish 3 bearish 1 neutral So in the past 4 weeks we’ve gone from 2 weeks of bullishness to 2 weeks of neutrality. Markets have been in a slow motion grind lower since the spike high on Trump’s speech, and the sluggishness is impacting traders’ moods.
Continue Reading -->Weekly Sentiment Update: The Crowd Is Neutral but Options Traders Are Running Wild
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. But let’s look at the actual numbers to see how the crowd actually feels. Last week, we saw sentiment fall to neutral territory after two weeks of strong bullishness. (see here and here) So with the Fed out of the way, let’s see if anything’s changed using our 5 primary sentiment indicators: 1) VIX Spread – Bullish The 3-month VIX spread is at +3.01 which indicates that traders are moderately bullish. 2) CNN Fear & Greed Index – Neutral The Fear & Greed Index is at 53, down from 66 last week. F&G operates on a 1-100 scale, and 53 is basically neutral. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 31.2% of individual investors are bullish, which is well below the long-term average of 38.5%. Bullish AAII Sentiment has been below the long-term average for 7 of the past 8 weeks. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.61 yesterday with a 3-day moving average is 0.68. This is slightly bearish. 5) ISE Sentiment – Bullish This is where things get really interesting. The ISE Sentiment Index is at an insane 304 this morning. That means 304 calls purchased for every 100 puts. We very rarely see reading this high, even in a hard rally. So there are a ton of post-Fed call buyers. , which is a bullish reading. The 10 day moving average is just 83, but I’ll call this bullish becasue of today’s extraordinary surge. Conclusion Out of 5 sentiment indicators, we have: -2 bullish -2 bearish -1 neutral So we’re still stuck in neutral territory, though the insane call buying indicated by the ISE Sentiment Index implies that traders are extremely optimistic near-term. With stocks creeping lower intraday, we’re about to see if those call buyers marked the top.
Continue Reading -->Weekly Sentiment Update: Back to Neutral That Fast?
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. But let’s look at the actual numbers to see how the crowd actually feels. Last week, we saw sentiment climb to frothy territory. Now, let’s see if anything’s changed now that we’re seeing some signs of deterioration, most notably the relative weakness in the Russell 2000. 1) VIX Spread – Bullish The 3-month VIX spread is at +3.96, 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 66, down from 81 last week. F&G operates on a 1-100 scale, and 66 indicates moderate greed. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 30.0% of individual investors are bullish, which is well below the long-term average of 38.5%. It’s also slightly down from last week, which is a surprise to me. Bullish AAII Sentiment has been below the long-term average for 7 of the past 8 weeks. 4) CBOE Equity Put-Call – Neutral The CBOE Equity-Put Call ratio was at 0.72 yesterday, which is a 2 week high. The 3-day moving average is 0.63. This is basically neutral. 5) ISE Sentiment – Neutral The ISE Sentiment Index is currently at 112 (112 calls for every 100 puts) at yesterday’s close, which is a bullish reading. And the 10-day moving average is 84.1. Even though the 10-day moving average indicates high demand for puts relative to calls, I’ll call this neutral because it’s moved up quite a bit, and for the past year or so, the number seems to be perpetually low. In fact, I may have to boot it from these Weekly Sentiment Updates. Conclusion Out of 5 sentiment indicators, we have 2 bullish, 2 neutral, and 2 bearish. So after two weeks of undeniably bullish readings, traders are back in neutral territory. It’s not exciting… but it’s the truth.
Continue Reading -->Weekly Sentiment Update: Bulls Are on Parade and Froth Is Setting In
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. But let’s look at the actual numbers to see how the crowd actually feels. Last week, we saw sentiment climb to undeniably bullish territory. Now, let’s see if anything’s changed following the market’s HUGE bull move off President Trump’s address to Congress. 1) VIX Spread – Bullish The 3-month VIX spread is at +3.88, 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 81, up from 75 last week. F&G operates on a 1-100 scale, and 81 is in extreme greed territory. 3) AAII Sentiment – Neutral The latest AAII Sentiment Survey shows that 37.9% of individual investors are bullish, which is right in-line with the long-term average of 38.5%. It’s also slightly down from last week, which is a surprise to me. This is Neutral. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio is at 0.51, which is near 3-month lows. There is a whiff of panic buying here. The 3-day moving average of 0.62. This indicates higher-than-average bullishness. 5) ISE Sentiment – Neutral The ISE Sentiment Index was 119 (92 calls for every 100 puts) at yesterday’s close, which is a bullish reading. And the 10-day moving average is 84.9. Even though the 10-day moving average indicates higher recent demand for puts, I’ll call this neutral because that moving average has moved up quite a bit, and the 119 reading is the highest we’ve seen since early December. Conclusion Out of 5 sentiment indicators, we have 3 bullish, 2 neutral, and 0 bearish. As I said last week, the ISE Sentiment Index seems to always read bearish no matter what’s going on in the market. So that neutral indicator actually doesn’t count for much. So for 2 weeks in a row, traders seem very bullish. That doesn’t necessarily mean we’ve topped out, but there is some frothiness to the action. I would get really worried if the VIX spread expanded to 5, because that would mean traders are pricing in basically no volatility at all following a 15% run off the pre-election lows. For now, I urge you to remember that market trends often go way longer than may seem reasonable. Many traders try to use sentiment indicators as buy/sell signals, but that is a very dangerous game.
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.
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