Weekly Sentiment Update: The Bears Are Disappearing!
Permabulls always say everyone's bearish.
And permabears always say everyone's bullish.
Neither side ever provides real evidence of their views.
But let's look at the actual numbers to see how the crowd actually feels.
Last week, traders were undeniably bearish. Specifically, they were loading up on put options like there was no tomorrow, which provided a ton of upside fuel after Macron scored a victory in the first round of the French Presidential election.
So let's see if sentiment has lifted with this week's surge, which drove the Russell 2000 and Nasdaq to fresh all-time highs.
(click here for a primer on the 5 sentiment indicators listed below)
1) VIX Spread – Bullish
The VIX has dropped like a rock this week, and the 3-month spread is at 3.27.
This means traders are moderately bullish.
2) CNN Fear & Greed Index – Neutral
The Fear & Greed Index is now at 48, up from just 34 last week.
F&G operates on a 1-100 scale, and a reading of 48 is smack in the middle, meaning traders are neutral.
3) AAII Sentiment – Neutral
The latest AAII Sentiment Survey shows that 38% of individual investors are bullish, a huge jump from last week's 25.7% reading.
While this is a major jump, it's right in-line with the long-term average of 38.5%.
So it's neutral.
4) CBOE Equity Put-Call – Neutral
The CBOE Equity-Put Call ratio was at 0.63 yesterday with a 3-day moving average of 0.62.
This indicates that traders are neutral. This is a pretty big decline from late last week, when traders were scooping up puts like there was no tomorrow.
5) ISE Sentiment – Neutral
The ISE Sentiment Index is at 92 (92 calls bought for every 100 puts). The 10 day moving average is just 88.4. So the recent trend shows higher put option demand.
However, I'll actually call this neutral because the ISE Sentiment index has been so down for so long that I'll count these readings as neutral.
One thing to keep in mind: for the past few months, I've found that the ISE Sentiment Index hasn't been terribly helpful in terms of judging sentiment. I believe its measurement methodology is very well thought-out, but even so, the results haven't been all that helpful.
I wrote more about that topic here.
So I'm taking the time to consider swapping it out with another indicator.
Conclusion
Out of 5 sentiment indicators, we have:
1 bullish
0 bearish
4 neutral
This is a big change from last week, when we had 0 bullish, 4 bearish, and 1 neutral.
So we went from stretched markets with bearish sentiment, to even more stretched markets with neutral sentiment.
Now, the big question is whether sentiment's about to go full-on bullish.
We'll know more tomorrow.
After the close today, we're getting an avalanche of earnings from the likes of Google (GOOGL), Amazon (AMZN), Starbucks (SBUX), and Intel (INTC), all of which are major Nasdaq components.
Incidentally, those reports should also dictate whether SPX is about to vault over the prior 2400.98 all-time high set on March 1.
And don't forget, #1 index heavyweight Apple (AAPL) reports on Tuesday, and it too will play a key role in the near-term action.
So keep an eye out — if we get stronger equity market action in the next few days, sentiment could head to full-on froth!