The Bulls Are Coming Out of Their Caves
Last Friday, traders sentiment was right smack-in-the-middle neutral, perfectly reflecting the back and forth action in the market.
On Tuesday, the SPX started on a very weak note, trading down to 2428.20 before the dip buyers stepped in, putting us as high as 2478.26 on Thursday.
With this big rebound behind us, let's see if traders' moods have gotten better to close out the week.
(click here for a primer on the sentiment indicators below)
1) VIX Spread – Bullish
Three weeks ago, the VIX hit 17.28, but with markets steadying themselves, it hit a low of 10.02 on Friday morning, not far from generational lows.
The 3-month spread is at +4.41, which means traders are very bullish. We've seen many readings above 4 this year, which is what I regard serious bullishness. Readings of +5 should be considered outright froth. If the SPX breaks out to new record highs, we coudl see such a reading again.
(click here for a primer on the VIX spread)
2) CNN Fear & Greed Index – Neutral
The Fear & Greed Index is at 46, up from just 22 last Friday.
The F&G Index operates on a 1-100 scale, and a reading of 46 qualifies as as neutral.
3) AAII Sentiment – Bearish
The latest AAII Sentiment Survey shows that just 25% of individual investors are bullish. This is down from 28.1% last week.
This 25.0 reading indicates that individual investors are bearish, and it's the lowest reading since May 18.
4) CBOE Equity Put-Call – Bullish
The CBOE Equity-Put Call ratio was at 0.57 Thursday, which is well below the long-term average of 0.655.
The 3-day moving average is 0.58, which is below the long-term average and thus bullish.
These numbers indicate that traders are very bullish
Conclusion
Out of 4 sentiment indicators, we have:
- 2 bullish (flat last week)
- 1 neutral (up from 0 last week)
- 1 bearish (down from 2 last week)
We have 2 bullish, 1 neutral, and 1 bearish indicators this week.
So traders are moderately bullish and in a better mood than last week.
We're definitely not in frothy territory, but if the SPX finds its footing again and blasts above 2490 to new all-time highs, that could change quickly.
Whether that happens soon is unclear.
On the plus side, it looks like traders are looking past today's weak nonfarm payrolls report (or at least that was already priced in), since financials are very strong.
Tech has been very resilient, but it would be nice to see small caps participate on a consistent basis.