Weekly Sentiment Report: With Record Highs All Around, Are the Bulls Out of Control?
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 definitely saw a bull party starting, with the VIX dropping back towards the 9.56 generational low set from May 9.
And after I wrote that, the VIX made an even lower low at 9.37 while the SPX, Nasdaq, Russell, and Dow all hit record highs.
The VIX hasn't been so low since December 1993.
While I always love talking sentiment, this latest market pop makes now the perfect time for an update on the market's mood, especially since we justed passed this week's big news trifecta — Comey's testimony, the UK election, and the ECB Meeting.
(click here for a primer on the 5 sentiment indicators below)
1) VIX Spread – Bullish
Obviously, the VIX is pretty much as low as it gets.
The 3-month curve is at +4.93, which means traders are extremely bullish. Readings near 5 are most definitely in froth territory.
2) CNN Fear & Greed Index – Neutral
The Fear & Greed Index is at 59, up from 56 last week.
F&G operates on a 1-100 scale, and a reading of 59 is neutral.
3) AAII Sentiment – Neutral
The latest AAII Sentiment Survey shows that 35.4% of individual investors are bullish, up from 32.9% last week.
This 32.9% reading is below the 38.5% long-term average, and indicates that individual investors are basically neutral.
The 8-week moving average for bullishness is just 31.7%.
At the start of the year, that 8-week moving average was 45.6%.
So even though the markets have been going straight up, individual investors have grown less and less trusting.
4) CBOE Equity Put-Call – Bullish
The CBOE Equity-Put Call ratio was at 0.55 yesterday with a 3-day moving average of 0.57. These numbers are under historical norms, indicating that traders are heavily leaning towards call options. This indicates high bullishness.
5) ISE Sentiment – Bearish
The ISE Sentiment Index is at 77 this morning (77 calls bought for every 100 puts). The 10 day moving average is 83.7.
The ISE has been steadily declining for the past couple of weeks — a bit of a surprise given the market's stability.
Conclusion
Out of 5 sentiment indicators, we have:
- 2 bullish
- 2 neutral
- 1 bearish
These numbers are unchanged from last week.
However, we are definitely approaching frothy territory, based upon the huge collapse in the VIX and the drop in the CBOE equity put-call ratio.
The doomsday crowd has been consistently saying the crowd is too bullish — even though they never have numbers to back those views up.
That said, they're close to being right.
The AAII sentiment number indicates that individual investors haven't quite bought into the bull case, even though volatility has disappeared as the market keeps grinding up.
Next, I want to repeat some data I posted last week:
A recent Gallup poll showed that just 54% of US adults have participated in the 2009-2017 bull market.
From 2001 – 2008, 62% of adults owned stocks.
Before the financial crisis, as many as 65% adults owned stock.
That means a huge number of people have missed out on a 267% move in the stock market.
On Thursday, Scott Redler talked about the biggest risk of all — the risk of missing out on wealth creation via smart long-term investing.
And it's crazy that even now, with the market more than tripling and going straight up since the election, there are still a lot of folks that don't believe.
Scott set a target of 2470 by June 30, and that scenario looks more and more likely.
Now if that AAII sentiment number was at 45%, I'd probably be looking at SPY puts or VIX calls.
But for now, it looks like the bulls still have the ball.