The Stock Market Forecast Shows Complacency with a Dash of Giddy
While most investor sentiment shows complacency, what’s going on with the options traders?
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I think we need to discuss sentiment because in some respects it is far away from giddy, and in other respects it’s knocking on the door.
Let’s start with the American Association of Individual Investors (AAII) because these folks are having none of it. I can make excuses for them, like they are old (like me!) and so they lived through prior tech booms like this. They have seen other times when the market was all tech and not much else. So they proceed with more caution than would say a 35-year-old who pretty much only knows a market that corrects for a few months at most before resuming the uptrend.
But that is rationalizing the fact that they sit at 39% bulls and 36% bears, with very little change in their stance since the S&P hit 7200 a few weeks ago. They are not giddy.
The Investors’ Intelligence folks are bullish. Too bullish? No. The bulls sit at 50% while the bears are at 22%, so we have a bit more than two bulls for every bear. Back in February, that ratio was four to one, making it giddy. Let’s call them complacent.
The Daily Sentiment Index (DSI) has barely budged this week. Earlier in the week, Nasdaq got to 85, but then there was a minor down day that reset it, and now it sits at 81 with the S&P at 80. I call that complacent but knocking on the door of giddy.
The VIX’s DSI is at 19, so that too is knocking on the Giddy Door.
But the real surprise, at least for me, was the NAAIM Exposure this week. Last week it perked up to 97, with folks almost on margin. This week it fell to 77! I have thought these folks typically follow the tech stocks/Mag 7 in the market, and that is what has been hot. I can make something up, but let’s just note they are definitely not giddy this week.
Then there are the options ratios. And I must say I don’t think I have ever seen the options folks this enthusiastic about the market, while the other sentiment indicators are not. The options folks are giddy. They have thrown caution to the wind. The Put/call ratio came in at .70 on Thursday. This is not the lowest reading we’ve seen (there have been a few under .70, but this is the first since we reached an intermediate-term overbought condition on Wednesday). When we put this on a ten-day moving average, we see it is at .76 which is where it was in the month before the Tariff Tantrum. Even the reading in mid-May last year, as we came off the lows, led to a 3% pullback before resuming the uptrend.
The ISEE call/put ratio was 2.0 on Thursday, which is the highest it has been in nearly two years. The ISEE equity call/put ratio was 2.90. My line in the sand on the equity (to call it giddy) is 3.0 because that means three calls for every put bought.
To sum it up, I think sentiment is complacent with a dash of giddy. Maybe that’s because so many see the divergences. They are quite glaring after all.
Your next read:
https://pro.thestreet.com/market-commentary/half-of-stocks-now-trading-under-key-average
