AI May Doom Humanity, But There’s No Sense in Being Bearish About It
While everyone knows the risk and some indicators are even showing bearish activity, sentiment remains complacent.
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In the last week or so, we have seen several articles about the dangers of AI. First, there was a greater than ten percent chance it could kill all humans within the next decade. Then there was the co-Chief Investment Officer at a prominent hedge fund who said it could kill people. Then the CEO of Anthropic said we should slow things down. I could go on but you get the gist of it.
I thought of all these warnings this weekend because, as you know, I believe sentiment is still quite complacent. Typically, we see warnings like this show up after the stock market has had at least a ten percent correction. Typically, this is the sort of stuff I highlight as anecdotal evidence that sentiment has shifted.
Yet we sit here with all the sentiment indicators—not anecdata but real data—showing little fear. I say this half jokingly, but the late great Art Cashin comes to mind. He always said don’t bet on the end of the world because there will be no one left to pay you (that’s paraphrasing). So maybe folks figure they may as well YOLO and buy calls!
When I look at how many charts have pulled back at least ten percent, or in some cases twenty percent, in the last month, I am surprised at how little the sentiment indicators have budged. Maybe it’s because the semis have acted much better, or technology in general. Maybe it’s because the S&P has held that 7600 area so steadfastly. Whatever it is it is highly unusual.
You see, even some of the intermediate-term indicators are getting oversold. The Hi-Lo Indicator is now at .25. It takes an awful lot of selling to get down there. Notice it didn’t even get down there last November. It did not even get there in the spring. Yet now it is closing in on where it was during the Tariff Tantrum when the S&P had plunged.
To show you the sentiment difference, look at the ten-day moving average of the put/call ratio. The two green circles show us the fear factor vs now. Heck, folks were clearly more fearful in late July this year when their beloved semis collapsed as the ten-day moving average surged to .96.
Or take a look at the Volume Indicator, which now sits at 49%. We can get decent rallies from 49%; we get better ones from 47%. But the point is how different sentiment has been when this indicator has gotten so oversold.
With the Daily Sentiment Indicator (DSI) having reached single digits on bonds and 91 on Oil, I would think we are close to a turn in two of the larger forces driving the recent pullback in the others. As I showed on Friday, the last time the DSI got this low for bonds, they had one last fling to the upside.
Perhaps what these oversold charts are saying is we bounce and come back down, and the sentiment changes on the next trip down. Or maybe this AI chatter will just have everyone YOLO-ing!
