Weekly Sentiment Update: Why the Bears May Fuel New All-Time Highs
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, the overall mood of traders shifted to neutral from the prior week's extreme bearishness.
With the healthcare vote, earnings from AAPL/AMZN/FB/TSLA, and the April nonfarm payrolls report out of the way, let's see how traders are feeling ahead of this weekend's French election.
(click here for a primer on these 5 sentiment indicators)
1) VIX Spread: Bullish
The VIX dropped under 10 this morning, and the 3-month spread is at +3.98.
This means that traders are fairly bullish.
2) CNN Fear & Greed Index: Neutral
The Fear & Greed Index is at 45, down from 48 last week.
F&G operates on a 1-100 scale, and a reading of 45 means traders are neutral.
3) AAII Sentiment: Neutral
The latest AAII Sentiment Survey shows that 38.1% of individual investors are bullish,basically unchanged from last week.
This is right in-line with the long-term average of 38.5%.
4) CBOE Equity Put-Call: Bearish
The CBOE Equity-Put Call ratio was at 0.77 yesterday with a 3-day moving average of 0.69. This indicates that traders are bearish.
5) ISE Sentiment: Bearish
The ISE Sentiment Index is at 65 as of the Thursday close (65 calls bought for every 100 puts). The 10 day moving average is just 88.2. So the recent trend shows higher put option demand.
The big drop ahead of Friday's NFP report has me slotting this number in at bearish.
Conclusion
Out of 5 sentiment indicators, we have:
- 1 bullish
- 2 neutral
- 2 bearish
So traders have gotten more negative since last week, when we had 1 bullish, 4 neutral, and 0 bearish sentiment indicators.
Last week, I wondered whether sentiment was about to go full-on bullish, but we saw precisely the opposite occur.
Traders actually got more bearish, which is vert encouraging for the bulls.
Judging by yesterday's surge in put option demand (as indicated by the CBOE equity put-call ratio and the ISE Sentiment Index), traders were hedging aggressively for today's NFP report and this weekend's French election.
This means there's a lot of bearish bets that will need to be unwound in a jiffy if we get a Macron victory in France. I don't think Marine Le Pen can be counted out until the final vote is tallied, but it certainly looks like Macron is in the driver's seat.
Call me crazy, but I think SPX makes new all-time highs above 2401 by Monday at 9:45 a.m. ET. (not that 8 points is a meaningful move in the grand scheme of things…)