One Week Later and I Am No Longer Surprised
What a difference a week makes... in sentiment, as my list of surprises has turned into one of things I'm not surprised at. Here's what that change could mean for the market.
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Each year as we enter a new calendar year there are many who put out their list of surprises for the coming twelve months. I suppose it is an interesting exercise, getting you to think outside the box. I presume it is akin to when the market is at a low or a high and I say rally or sell off and am asked immediately, what is it that will take us up or down?
My answer to that question is always the same: If I knew what it was (reminder: I am terrible at narratives) it would be priced into the market already. Thus it will almost always be something that surprises even those who make such lists.
Yet one week ago today I made a list of things that had surprised me in the market in the latter part of June. One of the items on the list was sentiment. I was surprised it was not giddy. I was surprised it had been so subdued even though breadth had finally gotten going, even though the sleepy old Dow had rallied 2,000 points, finally cracking over the mid-May high.
One week later I am no longer surprised. A week ago I was surprised that the folks at The National Association of Active Investment Managers (NAAIM) had taken their exposure down from the low 90s to 80. Now those same folks are knocking on the door of 100. Over 100 and they are considered to be on margin.
One week ago I noted we had not seen an equity put/call ratio under 0.50 since mid-May. I was surprised. Thursday’s action took care of that as we finally got a reading of 0.48. I am no longer surprised.
One week ago the Investors Intelligence bulls were up but subdued. Last week the bulls jumped 12 points, a rare one-week move, to 51%. While I explained that 51% on its own is not extreme, the one-week change in bulls was.
The bears fell quite a bit as well as they are back to 21%. Again this is not extreme, but it is back to where they were a year ago.
The American Association of Individual Investors (AAII) folks who tend to jump around like day traders did in fact finally jump the fence from bear to bull. Again, they are not extreme, but the bulls went up 10 points to 45%, the highest of the year.
The Citi Panci/Euphoria chart was knocking on the door of "Euphoria" a week ago, now it has crossed over the threshold. I am no longer surprised.
I am not a huge fan of the CNN Fear and Greed Index, but here too you can see the change. It’s pushed into "Extreme Greed" and is now at 77; a week ago it was at 63.
Finally, there is the Daily Sentiment Indicator (DSI). It works on a scale of 0 to 100. Over 85 and I see yellow flags. Over 90 and it’s red flags. The S&P 500 is now at 87 while the Nasdaq is at 86.
I hope you can see why I am now no longer surprised at sentiment. Folks have jumped the fence from the bear to the bull camp. We don’t always come down immediately after such moves in sentiment but we’re in the area now. And we’re back to overbought.
