Bullishness Has Eased, but in a Selloff the Bears Still Will Scramble
The AAII bulls pulled in their horns a bit this week and the bears jumped up.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
Longtime readers know that I like to watch financial television because if you pay close enough attention you see the same guests over and over, and you can see whether they have shifted their views.
Two weeks ago I saw a regular guest who was quite bearish at the lows and stayed that way for quite some time. But two weeks ago she was literally full steam ahead, nothing to bother the market. In fact, the host even questioned her with something like: So you're bullish? Her answer was an enthusiastic yes.
OK, chalk her up to a good sentiment tell, right?
Thursday she was on again. Now she is not so bullish (I wish I was making this up) but now she said we had to be much more selective because there were so many individual stocks that were gapping. While she did not say gapping up and down, she cited all these down gaps.
I am certain she doesn’t even realize that she has swayed with the price and market action. And as a boss I had once said, you don’t need to catch the turns, just as long as you are there for the bulk of the ride, which this woman has been.
I thought of this because the AAII bulls pulled in their horns a bit this week (35%) but the bears jumped up 10 points to 43%. That means there are now more bears than bulls for the first time since June. I would remind you that these folks tend to be older and they did turn quite bearish in February, well before the market turned south, so they are not always a “fade.”
Counter this with the folks from NAAIM. Each week we see what their exposure to the market is. I have contended for quite some time that they tend to sway with the performance of the megacaps. This week they moved their exposure up from 76 to 96. They got to just shy of 100 in early July. And at the April low they had dropped to 35. They do tend to be a fade, in my opinion.
Then there is the put/call ratio. On Thursday it was .78, which was the lowest reading since mid-July. Yet the 10-day moving average of this indicator has been rising in the past few weeks. Here is the 10-day moving average of the equity-only put/call ratio. Since early July it has gone from .53 to .65. That’s quite a rise considering the indexes are mostly flat to up since then. Maybe it’s all those “seasonality” folks buying puts!
Even the options folks (mostly small traders) over on the ISE have pulled in their horns. The 10-day moving average has come down significantly. Recall that this is a call/put ratio, so it should look like the inverse of the put/call ratio.
The bottom line is that sentiment is not as bullish as it was in early July, but you can see how if we can ever get a selloff that sticks, the AAII folks will see the bears over 50% in a heartbeat and the options ratios will be halfway to panic. And that lady on TV? I’m certain she will go from picky to bearish rather quickly!
