Something Smells When Speculation Becomes This Ridiculous
When a coin that would make a 5-year-old giggle is a hot investment, you know we're heavy into speculative territory.
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For months I have been harping away about the speculation in the markets. I do not think it is gone. In fact I would say the speculation in coins is akin to what we saw in SPACs four years ago (maybe worse). When a coin called Fartcoin is now worth more than 900 of the companies in the Russell 3000 we know we’re heavy into speculative territory.
I have even noted that I think much of the money that would typically be going into all those ‘others’ stocks at this time of the year is busy in the coin arena. However, when there is a shift in sentiment it behooves me to state it and there has been a shift.
I don’t think it’s the sort of shift that is extreme but the American Association of Individual Investors (AAII) saw the bulls sink to 35.4% this week. That is the lowest for the bulls since they were 32% in April. The Bears haven’t moved much but the bulls have pulled in their horns.
Then there’s the Investors Intelligence cohort. I put more emphasis on this survey than I do on AAII as I believe they are not a bunch of day traders as the AAII folks are. In any event, a month ago the bulls here were at 63%. They are now down to 54%. This is not an extreme reading but it is a marked shift in bullishness, which is a step in the right direction.
The biggest change came from the folks at the National Association of Active Investment Managers (NAAIM) as they really pulled it in. A few short weeks ago, their exposure to the market was knocking on the door of 100 (over 100 means they are on margin). Now their exposure to the market is 64 which is closing in on the levels we saw in April and August. Now that’s a shift in sentiment.
Long time readers will know I am not a fan of the Fear and Greed Index, mostly because it contains breadth which is not a sentiment indicator in my opinion so it tends to skew this too much. However it is now knocking on the door of Extreme Fear.
The out of control volume on Nasdaq is still there. In fact Nasdaq has now notched up its eighth straight day of more up volume than down volume, with Thursday being the highest reading in eight days. But the options players seem to have had a change of heart. The CBOE’s put/call ratio was 1.05 which is the first reading over 1.0 since before the election. The moving average lines show no extreme but that’s a shift for the day.
Sticking with the options ratios, the ISE Equity call/put reading which has been off the charts chimed in with a reading of 1.98. That is still high but it is the first reading under 2.0 since Thanksgiving. Let’s call that a minor change of heart.
If we look at the five-day moving average of this indicator, we can see how extreme it has gotten. It has now rolled over. Get this down a lot more in the coming days/weeks and we may be able to say there has been a major change (now it’s just minor, being one day).
I suppose this just tells us that five straight red days for the S&P has a way of changing sentiment. A change in sentiment is a welcome change.
