The Bull Market Can Continue Forever. Really?
It's foolish to read too much into any one anecdote, especially when it comes to soundbites and one-liners.
But this statement from Leuthold Chief Investment Strategist Jim Paulsen on CNBC really caught my eye:
“We've got a fully employed economy, rising real wages. We restarted the corporate earnings cycle. We've got strong confidence among business and consumers,” he said on “Squawk Box.”
“The kick is we can do all of this without aggravating inflation and interest rates,” he said. “If that's going to continue, I think the bull market could continue to forever.”
To be fair, Mr. Paulsen tempered his statement with by saying “if that's going to continue.”
Nonetheless, it seems a little overboard to even imply a bull market can go on forever.
That makes now a great time to go through our 5 sentiment indicators to see if the crowd also sees sunshine ahead for equities.
(click here for a primer on the 5 sentiment indicators below)
1) VIX Spread – Bullish
The VIX is at 9.82, which puts it within range of generational lows.
That puts the 3-month spread at 3.97, which means that traders are fairly bullish.
(click here for a primer on the VIX spread)
2) CNN Fear & Greed Index – Bullish
The Fear & Greed Index is at 63.
The F&G Index operates on a 1-100 scale, and a reading of 63 qualifies as mildly greedy.
3) AAII Sentiment – Neutral
The latest AAII Sentiment Survey shows that 36.1% of individual investors are bullish.
This 36.1% reading is roughly in-line with the 38.5% long-term average, and indicates that individual investors are basically neutral, even though the major indices are still near all-time highs.
4) CBOE Equity Put-Call – Bearish
The CBOE Equity-Put Call ratio was at 0.71 Friday, which is above the long-term average.
The 3-day moving average is 0.70, which is above the long-term average.
These numbers indicate that traders are moderately bearish.
5) ISE Sentiment – SUSPENDED!
For months, I've been pondering kicking out this sentiment indicator since it has seemingly lost predictive value.
However, ISE has announced it has suspended the index, so now I'm being forced to eliminate it.
I'll likely replace it with the CBOE Skew index (SKEW), which uses options prices to determine whether traders are pricing in extreme risks.
Conclusion
Out of 4 sentiment indicators, we have:
- 2 bullish
- 1 neutral
- 1 bearish
So it looks the crowd is in a more neutral state of mind after getting nutty a couple weeks ago. They definitely don't believe in a “this bull market can last forever” scenario.
That's been pretty common this year.
We've seen a few stretches with hyper-bullish sentiment, but they've never lasted.
That's been very frustrating for the bears, because these rapid pullbacks in sentiment seem to prevent the market from topping out.
At the late 2007 market top, sentiment was incredibly bullish, but we're seeing nothing of the like in 2017.
So I'll ask a question: can the market top without the bulls buying in emotionally?
I really don't know the answer.