Stock Market Sentiment, Volume 2

Collecting different sentiment indicators and trying to make sense of the market

The last time I talked about the weather, I was packing my bags for Sint Maarten. Time is a flat circle, because I’m writing this before some R&R in Hilton Head to celebrate my wife and I’s anniversary.

A quick weather intro.

Apple maps took my wife and I away from a highway because of a wreck, only for that one-lane road to get backed up for two hours. Apple’s weather app then dumped rain on us at an unexpected time and I had to cancel my tee time at Hilton Head National (okay, that one’s just island life).

Did I complain? Yes. But did I also collect as much data as I could, also yes. I downloaded Waze and Windy, two rival products with far better UX.

There’s lessons in there somewhere, maybe I’ll learn. But in the meantime, let’s get to Sentiment, Vol. 2.

Digging through the crates in Schaeffer’s backroom recently, I came across a relic of a lost age. A magazine, I think folks called it? It didn’t have an internet connection, it was on glossy, high-quality paper (microplastics galore), and there were no video capabilities. An ode to simpler times.

Hopefully, some readers here remember Schaeffer’s monthly print magazine, Sentiment. The nostalgic discovery felt serendipitous, because stock market outlooks right now are as murky as ever. Major indexes are vying for record highs, semiconductors are partying like its 1999, yet inflation data and geopolitical tensions are ever-present.

We’re going to lean into the nostalgia and celebrate Sentiment with a whiparound look of our most valued sentiment metrics.

The self-appointed C.A.I.V.O.S. index is an amalgamation of sentiment indicators from across Wall Street. They consist of CNN’s Fear & Greed Index, the American Association of Institutional Investors (AAII), the Investors Intelligence (II) poll, the Cboe Volatility Index (VIX), index option activity, and short interest. While the acronym needs workshopping, this collection of indicators paints as full a picture as possible of investor sentiment on Wall Street.

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CNN’s Fear & Greed Index

I put both headline charts together. Greed has been good, shoutout Gordon Gecko. Note how quick that pivot from fear to greed was, and how its smoothed out over the last four weeks.

American Association of Institutional Investors (AAII)

Bulls outnumber bears, but not at eye-popping levels. In fact, this is the most neutral the AAII survey has been since March. The latest AAI reading shows the percentile rank of bears is 65% all time. For bulls, its 54%.

All things considered, nothing too drastic, and a chaser to the extremes seen from CNN.

Investors Intelligence (II)

For the latest II poll, the percentage of bulls among advisors fell to 47.3% (2.7% decrease). The percentage of bears among advisors increased to 23.6% (2.5% increase). 29.1% of advisors foresee a correction in the market.

Per the 5/1 reading

Bulls, bears, AND the bulls-bears line are all at their long-term average.

The VIX

Wall Street’s “fear gauge” has spent over a month (April 8) below 20. Prior to that, the VIX spent a month above 20. I linked up with Senior Quantitative Analyst Rocky White for some data on this.

He looked at times the VIX’s 20-day average was above 20 for at least a month (21 trading days) and then the 20-day average moved below 20.

Doing this gives 21 prior signals, starting at 1997. The S&P 500 Index (SPX) underperformed significantly after these occurrences. Six months after, the SPX averaged a return of 0.42% and 62% positive, compared to the usual 4.43% and 72% positive.

The VIX tends to move higher after signals, unsurprisingly.

What about when the SPX is near all-time highs? Yeah, still scary, with negative returns across all timeframes. You clearly can’t keep the VIX down for long.

Options Activity

First table is the Nasdaq-100 (NDX) put ratio.

That ratio is getting awfully close to its 12-month lows, all while the NDX threatens to climb off the page. Nooooticing.

For the SPX, this is its lowest p/c reading since October.

And here’s the kicker. Scrap the indexes, and all-optionable puts are a-poppin.

The all-optionable P/C ratio is near its lowest levels since 2021.

So despite all the euphoric readings, options traders are quietly scooping up puts as protection.

Short Interest

Last but not least, short interest. For the SPX, its up 2% in the most recent report, and in the 100th percentile of its five-year rank.

Ditto for the Nasdaq-100 (NDX) and Russell 2000 (RUT).

So running all these data points through CAIVOS, we have:

• CNN: Greed

• AAII: Stable

• II: Stable

• VIX: Subdued, but quantitatively signaling some trouble

• Options Activity: A ramping up of bears

• Shorts: A ramping up of bears

Do with that information what you will.