Sentiment Overview: Bulls Still in Retreat

Here’s this past week’s overview of sentiment data:

Sentiment Surveys

The retail investors and traders tracked by the AAII weekly sentiment survey continue to pull in their horns. The bears came in at 49% a 4% points increase from last week and the bulls were at 40%, a 6% increase from last week. Pulling back to provide some perspective, we’re still mired in no man’s land - neither optimistic nor pessimistic.

Similar to last week, the Investors Intelligence sentiment survey of newsletter editors was almost unchanged. There were 40.9% bulls, 28.4% bears and the rest neutral. The next test of sentiment is how it will react to a fall in stock prices. Will people throw in the towel? or persist in a new found optimism?

TED Spread
Although it was prominently featured everywhere just a few months ago, the TED spread has fallen off everyone’s radar now. After reaching a climax on October 10th, 2008 it has continuously fallen lower to reach levels that it was trading at in early August 2007:

It still has quite a ways to go to reach the multi-year lows of 15 but it is just another indicator returning to normal and signaling that the worst is over for the credit markets.

Volatility
The volatility index (CBOE’s VIX) continues to take one step forward, two steps back - slowly grinding lower. It gave up the 30 level again this week on its way lower. Mr. Market is remarkable, who would have every imagined that we would be seeing 30 as ‘low’? For a long term chart of the VIX and further details on what this means for the market, check out Volatility Continues To Melt Lower.

Options Sentiment
The ISEE (equity only) call put ratio was elevated for the whole week and for Friday it was 237 - meaning that for every 100 puts, retail option traders were purchasing 237 call options. To find an ISE sentiment index reading higher we have to go back more than 2 years to the last day of trading for the year on December 31st, 2007 when the ratio was 241 (and the S&P 500 closed at 1468.

Even so, I’d prefer to see more than a one day spike because the last time something similar happened, it turned out to be completely false. It was on March 9th when the ISE ratio doubled within a few days. But that was exactly when the market started this confounding rally. For that reason I’d prefer to see more than a few days of such extreme optimism.

The CBOE (equity only) put call ratio hasn’t confirmed the ISE optimism - which is another reason to not be jumpy. This week’s put call ratio was moderately higher but we didn’t see a significant change so the chart I showed in last week’s sentiment overview is still helpful.

Comments

[TradingHelp...:]

Excellent summary. I think volatility will continue to ease through the summer and we are more likely to see further more steady gains, with the S&P 500 moving very close to 1,000 from 919 now.

May 31 01:38 PM

[crosscreek:]

The data is at odds with the latest Investor Intelligence report, which puts bearish sentiment at 28.4%, the lowest reading in a year. Bears have thrown in the towel. It does not augur well.
www.schaeffersresearch...

May 31 03:03 PM

[crosscreek:]

Sorry, can't edit comments, I am in agreement with the article, but my point is that bears have thrown in the towel already. What bulls are not getting is the added kick. The rally has artificial impetus (zero Hedge does good work in that respect, re Goldman), retail traders( per ISE equity ) are the main participants and commercials are staying away. It is supposed to go the other way around, with retail traders jumping in last.

May 31 03:10 PM

[patently-ab...:]

STOP SPAMMING ASS HAT

May 31 07:18 PM

[dcb:]

Just to let everyone know this is Cetin again doing his usual BS thing. As I stated before in a post by noting changes in rating patterns the trolls are active again. please report him for abuse. As stated before he gets kicked off sites, and then has to play these games. Clear case of mental illness. Strange how easily one can predict this persons actions.


On May 31 04:49 PM BreH wrote:

> Do realize that there are two levels at play here. The instinctive,
> animal level, where we want to punish those who have done us wrong,
> while those who have done us wrong have done it following their animal
> desires. There is also the rational level, of which to I am referring
> to above. Realistically, I know the beast in us will take over and
> this will end like it did in France in the 1790's. I will, however,
> not be the one holding the sword.
>
> I came across this cool finance site..check it out url.moosaico.com/10424
> beats those slow news days

May 31 09:34 PM

[ain't no fo...:]

Note that the VIX today is actually UP and comfortably above its recent low... an interesting dichotomy.

The NAZ and NDX broke above their 200 day EMA's Friday, while SPX, NYSE, RUT and Wilshire did so today, but the Dow has a ways to go (about 150 more points to 8867), while the Transports have about 60 to go.

I see some negative divergences building into some of these charts, especially with the Sto and MACD, and the 2 period RSI I follow is starting to flash overbought (above 90 on ALL of these indices) - it will be interesting to see what follow through, if any, we get here.

Of course, technicals don't mean much when we have Government Sachs running in massive buy programs daily.

On May 31 03:10 PM crosscreek wrote:

> Sorry, can't edit comments, I am in agreement with the article, but
> my point is that bears have thrown in the towel already. What bulls
> are not getting is the added kick. The rally has artificial impetus
> (zero Hedge does good work in that respect, re Goldman), retail traders(
> per ISE equity ) are the main participants and commercials are staying
> away. It is supposed to go the other way around, with retail traders
> jumping in last.

Jun 01 01:36 PM

[AndrewBaker:]

There are too many influences at work here: markets are up worldwide on rhetoric from politicans and their vested interest cronies worldwide. Talk the markets up, they have proved they can. But they can't turn world economies around, and in fact are part of the reason for the poor state, as they consume lots but produce nothing. This means that when they run out of spin, the markets will spin down even further and harder, causing many ordinary people great financial pain. I'll ride this rally for as long as it lasts, but my stops are very tight.

Jun 01 02:23 PM

[RTF 360:]

200 points up again today , so much for retreat.Why a target of 10,000 ?
Over 7,000 DOW points lost since the 14,000 top
3,500 DOW points for a half way back reteacement.
6,500 low on the DOW PLUS 3,500 = 10,000. No brainer.

It'll print 10,000 for the simple fact of share leverage.

The question you want to ask, "Do I squander this last chance at share leverage after destroying technical resistance for the past 48 trading days ?"

Equities are safer than Oligarchy Bankster Treasury Bonds.

The TRUE flight to quality is equities over Treasuries.

Jun 01 11:57 PM