Friday the 13th and Sentiment Is Getting Spooky

Friday the 13^th. Will it be spooky?

Let’s talk sentiment. On Thursday, I noted the Investors Intelligence bulls had come down to 37%. The bears had lifted to 24%, leaving the ratio of bulls to bears at 1.54. On Thursday, the American Association of Individual Investors’ weekly survey clocked in with 51% bears and 30% bulls. While that is not as extreme as mid-September, at least it is finally showing confirmation from the Investors Intelligence readings.

Then there is the National Association of Active Investment Managers (NAAIM) who have dropped their exposure to the market to 72. This is not the lowest they have been but it is a far cry from the margin they were on a few months ago. 

Then there is the 10-day moving average of the put/call ratio. Over the past week, since that big post-election whack last Thursday, this indicator has had only one day with a reading under .90 and that reading was .88. This has pushed the 10-day moving average up to .91. As you can see, it topped .95 in July and in the spring it got over 1.0. 

My point in going through all of this with you is that I can no longer call sentiment complacent. Is it panicky? No. Is it too bearish? Not really. But it won’t take much to push them there. It’s no longer difficult to see another pullback that gets these indicators into panic, whereas two or three weeks ago it was difficult to envision.

And that brings me back to the sentiment cycle. On Monday, I said I thought we were in that little area that is unlabeled but just to the right of the words “buy the dip.” The action over this week sort of resembles that with the every-other-day up and down.

Last week, I noted that the Nasdaq Momentum Indicator would be set to be oversold this week and we have gotten a rally in the tech names. Heck, the (SOX) is up nearly 15% in a week, despite the action in (NVIDIA). If the market rallies Friday then we’re likely set up to be overbought (short term) early next week. I realize it doesn’t look that way on my own oscillator, but the math behind it says so.

With that in mind, let’s go back to that chart of the RSP relative to the S&P. It could not get over the blue line. The others are overbought (short term) and act it. (They get intermediate term overbought around Thanksgiving.) On Thursday, it was the others that did not hang tough while tech did. 

So, let’s imagine for a minute that this either/or market takes a breather next week and we see another push down, only this time the market works in concert. Maybe, just maybe, we see those sentiment indicators push into panic. 

I realize I have been asking for this and it continues to remain elusive. But hope springs eternal!