Weekly Sentiment Update: The Crowd Is Neutral but Options Traders Are Running Wild

March 16, 2017
/ By Michael Comeau

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 saw sentiment fall to neutral territory after two weeks of strong bullishness. (see here and here)

So with the Fed out of the way, let's see if anything's changed using our 5 primary sentiment indicators:

1) VIX Spread – Bullish

The 3-month VIX spread is at +3.01 which indicates that traders are moderately bullish.

2) CNN Fear & Greed Index – Neutral

The Fear & Greed Index is at 53, down from 66 last week.

F&G operates on a 1-100 scale, and 53 is basically neutral.

3) AAII Sentiment – Bearish

The latest AAII Sentiment Survey shows that 31.2% of individual investors are bullish, which is well below the long-term average of 38.5%.

Bullish AAII Sentiment has been below the long-term average for 7 of the past 8 weeks.

4) CBOE Equity Put-Call – Bearish

The CBOE Equity-Put Call ratio was at 0.61 yesterday with a 3-day moving average is 0.68. This is slightly bearish.

5) ISE Sentiment – Bullish

This is where things get really interesting.

The ISE Sentiment Index is at an insane 304 this morning. That means 304 calls purchased for every 100 puts. We very rarely see reading this high, even in a hard rally.

So there are a ton of post-Fed call buyers. , which is a bullish reading. The 10 day moving average is just 83, but I'll call this bullish becasue of today's extraordinary surge.

Conclusion

Out of 5 sentiment indicators, we have:

-2 bullish
-2 bearish
-1 neutral

So we're still stuck in neutral territory, though the insane call buying indicated by the ISE Sentiment Index implies that traders are extremely optimistic near-term.

With stocks creeping lower intraday, we're about to see if those call buyers marked the top.

Weekly Sentiment Update: The Crowd Is Neutral but Options Traders Are Running Wild

Leave a Comment:

Popular posts

Sami’s Swing Trading Blueprint: April 29, 2018

How to Use the VIX Curve to Judge the Market’s Mood

What’s On Tap for Traders: April 24-29

Scott Redler: 10 Trading Rules I’ll Teach My Son