Weekly Sentiment Update: The Bulls Come Out to Play
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, sentiment was very bearish, and I said “I think SPX makes new all-time highs above 2401 by Monday at 9:45 a.m. ET.”
And indeed, in the aftermath of Emmanual Macron's victory in France, the SPX did indeed squeeze to a new record high at 2401.36 at 9:35 a.m. ET.
That was followed by another all-time high on Tuesday at 2403.87 before the market fell back into the range.
So let's take a fresh look at sentiment and figure out whether the bears are still growling.
(click here for a primer on these 5 sentiment indicators)
1) VIX Spread – Bullish
The VIX is at 10.70 this morning after hitting new 10-year lows earlier in the week.
The 3-month spread is at 3.7, which means that traders are moderately bullish.
2) CNN Fear & Greed Index – Bullish
The Fear & Greed Index is at 63.
F&G operates on a 1-100 scale, and a reading of 63 means traders are moderatly bullish.
3) AAII Sentiment – Bearish
The latest AAII Sentiment Survey shows that 32.7% of individual investors are bullish, down from 38.1% last week.
This is below the long-term average of 38.5%.
4) CBOE Equity Put-Call – Neutral
The CBOE Equity-Put Call ratio was at 0.65 yesterday with a 3-day moving average of 0.63. This indicates that traders are neutral.
5) ISE Sentiment – Neutral
The ISE Sentiment Index is at 97 as of late morning (97 calls bought for every 100 puts). The 10 day moving average is 87.6. So the recent trend shows higher put option demand.
However, I'll consider this number neutral because it's actually risen a bit in the past couple of weeks.
Conclusion
Out of 5 sentiment indicators, we have:
- 2 Bullish (up from 1 last week)
- 2 Neutral (unchanged from last week
- 1 Bearish (down from 2 last week
Traders looked pretty negative last week ahead of the April jobs numbers and the French election results, but they've swung to moderately bullish this week.
Looking forward, we'll probably need a meaningful surge above the new 2403.87 record high to push the market into full-on froth category.
But to be fair, for 2 reasons, it could be argued that froth already set in:
1) The VIX hit 9.56 earlier this week the lowest level since February 2007
2) There's just no volatility because the shallowest of dips keep getting bought
But let's play it by ear.
Low-volatility stretches can go on for a long time before anything changes.