Weekly Sentiment Report: Fear Is Here!
Last week, I asked if the bulls went too far.
Options traders were buying call options like crazy, betting on a big pop into quarter-end.
Turns out, the only thing that popped was the VIX, which rose 56% intraday yesterday, its 5th largest range ever.
Take a look at this chart:
So let's take a look out our 5 sentiment indicators to see just how bearish traders are after yesterday's volatility spike.
(click here for a primer on the 5 sentiment indicators below)
1) VIX Spread – Bullish
This VIX rose so fast yesterday that the curve actually inverted for a short period, indicating extreme fear.
But less than 24 hours later, the VIX is around 11ish and the 3-month spread has reinflated back to +2.75.
So everyone that bought puts yesterday to bet on a further decline today is getting spanked.
2) CNN Fear & Greed Index – Neutral
The Fear & Greed Index is at 53, flat from last week.
F&G operates on a 1-100 scale, and a reading of 53 is right smack in the middle.
3) AAII Sentiment – Bearish
The latest AAII Sentiment Survey shows that just 29.7% of individual investors are bullish, dowm from 32.7% last week.
This 29.7% reading is well below the 38.5% long-term average, and indicates that individual investors are fearful.
Throughout this year, individual investors have tended to not trust the market, and this latest reading indicates that nothing's changed.
On a related note, two weeks ago, I compared 2017 AAII numbers to those back at the 2007 market top.
Individual investors were downright loony in October 2007, not the least bit worried about the deteriorating housing market.
They've been much more skittish in 2017 even though we've had almost no volatility this year.
4) CBOE Equity Put-Call – Bearish
The CBOE Equity-Put Call ratio was at 0.69 yesterday, which is a bearish reading.
The 3-day moving average is 0.66, which is slightly above the long-term average.
These numbers indicate that traders are modestly bearish.
5) ISE Sentiment – Bearish
The ISE Sentiment Index is at 90 (90 calls bought for every 100 puts. The 10 day moving average is just 81.5 (81.5 calls for every 100 puts)
This indicates that traders are bearish.
Conclusion
Out of 5 sentiment indicators, we have:
- 1 bullish (down from 2)
- 1 neutral (down from 2)
- 3 bearish (up from 1)
Clearly, traders are more bearish than last week.
So we're seeing the same old trend — every time the market hits the rocks, traders get real real bearish real real fast.
I know it's trendy to say that everyone's bullish, but that's just plain wrong.
If you want to see what real bullish sentiment looks like, go back to 2007.
As I noted earlier, we've seen very little volatility this year.
So the fear isn't coming from troubling price action.
The problem seems to be two-fold:
1) People are fixated on Washington DC headlines and assume that political volatility will lead to a down market
2) The bull market's gone on for so long that people assume it just has to hit the wall — what goes up must come down
The bears will be right eventually, but who knows when?
Jeff Cooper is making a very good case for further downside, so I suggest you read his latest piece: