NFTRH; Market Sentiment

I wanted to go to Sentimentrader to grab actual graphical data and more detailed information, but their website is down this morning. So instead I’ll present their emailed summary. It is an obviously still bullish sentiment structure.

NAAIM data as of April 22 shows a distinct recovery in money managers’ bullishness (or more accurately, FOMO*). If we make an assumption that the rally needs to reach sentiment extremes before it terminates then this is bullish too. Regardless, even if it will not approach an extreme, there is more room to run. From naaim.org:

My operating thesis has been that it does not need to reach extremes, but persistent negative sentiment (and short positioning) by hedge funds as noted above (which in my experience are smart money in myth only) and individual investors (AAII) are contrary bullish. From yardeni.com:

aaii

As of April 22 mom & pop (AAII) were completely bearish. That is bullish here in sentiment land. The newsletter herd was holding out from a bullish stance on the 21st. Also permissive of higher stock prices.

investors intelligence

So where does this leave the market? Let’s look at its 2020 story. The year began with a dip in January and typically of a mania, new highs as any negative sentiment twitches were being used as short-term fuel. We tracked that behavior all along the rise from 3000, which was the “Bull Turnstile” area (the point crossed to engage a bull mania blow off scenario) we noted at the time. The Corona-crash was epic. An impulsive surrender to bearish sentiment in quick time. The VIX maxed out, the bottom came and the relief rally was on.

spx and vix

Only in Wonderland could we expect SPX to fill its upper gap and VIX to fill its lower one. But we are in Wonderland where anything is possible because there is a bullish case for stocks. It does not involve traditional things like earnings or growth metrics. It involves funny munny, yet that is a real consideration with a blueprint from 2012 to 2020 to prove it. The Fed is seeking to cheapen money units in favor of asset units. Equities are financial asset units.

On the VIX chart above 30 looks like better support than the current 35. That would project SPX to the old Bull Turnstile at the 3000 area.

Speaking personally, at the very least I am not shorting this market. At the most I’ll keep dancing with some in-week trading and whatnot (while managing cash closely). However, I am trying to focus on gold and silver stocks, which I am keeping in a separate analytical bin.

* Fear of missing out.