Weekly Sentiment Report: Do Traders Fear the Nasty Nasdaq?
Finally, volatility is picking up.
The Nasdaq's big June 9 pop and drop broke the “buy the dip” crowd's will to some extend, and tech stocks specifically are showing much more movement.
And if you're an active trader, that's a good thing. It means more opportunities for action on both the long and short side.
So let's take a look at whether the sudden rise in volatility is affecting trader psychology.
Last week's sentiment report showed a spike in fear.
And as you can see in the chart below, the VIX has started stair-stepping higher:
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
We saw wild action in the VIX last week, with the curve actually inverting before reinflating back to very bullish levels.
The VIX is at 12 with a 3-month spread of +2.8.
This is down from last week's +3.75 level, but it still indicates bullishness.
2) CNN Fear & Greed Index – Neutral
The Fear & Greed Index is at 44, down from 53 last week..
F&G operates on a 1-100 scale, and a reading of 44 is close enough to the middle to be considered neutral.
3) AAII Sentiment – Bearish
The latest AAII Sentiment Survey shows that just 29.6% of individual investors are bullish, down slightly from 29.7% last week.
This 29.6% reading is well below the 38.5% long-term average, and indicates that individual investors still don't trusth the market.
This has been the trend all year, even when the SPX was hitting record highs with basically no volatility.
On a related note, three weeks ago, I compared 2017 AAII numbers to those back at the 2007 market top.
Individual investors were insanely bullish in October 2007. Banks had been weak, but overall, investors were not the least bit worried about the deteriorating housing market.
2017 has been a different story altogether. Even if individual investors are buying in, they're doing so begrudgingly.
4) CBOE Equity Put-Call – Bullish
The CBOE Equity-Put Call ratio was at 0.65 yesterday, which is a neutral reading.
The 3-day moving average is 0.60, which is below the long-term average.
These numbers indicate that traders are modestly bullish.
5) ISE Sentiment – Neutral
The ISE Sentiment Index is at 86 (86 calls bought for every 100 puts. The 10 day moving average is 96.4 (96.4 calls for every 100 puts).
This indicates that traders are neutral.
However, I'm considering removing this indicator from the Weekly Sentiment Report because it so rarely turns bullish, no matter what the market's doing.
Conclusion
Out of 5 sentiment indicators, we have:
- 2 bullish (up from 1 last week)
- 2 neutral (up from 1)
- 1 bearish (down from 3)
So Nasdaq volatility is picking up… and fear isn't.
Last week, 3 of our 5 indicators were bearish.
Today, just 1 is bearish.
But if we pull back to a longer time frame, it's obvious that sentiment is nowhere near as bullish as it was at the last market top back in 2007.
That's a bit odd.
As I've written again and again, we've seen very little volatility this year, at least up until the last month.
You'd think with a market going straight up all year, there'd be widespread optimism.
But there just isn't.