A Look at Sentiment Risk

The stock market’s sentiment profile is not at all good

In NFTRH we use these charts along with Sentimentrader (primarily, e.g. graphic above) and Yardeni to routinely track the sentiment profile of the stock market. For much of 2020, we had to remain bullish (technicals and trends) while having to make peace with an over-bullish sentiment risk profile. It’s a mental exercise, to say the least.

The Equity Put/Call ratio’s 10 week EMA is brutally dangerous.


Ma & Pa (AAII) are persistently over-bullish now, where once upon a time last summer into fall they were doggedly holding out from the bull party.


Investment Managers (NAAIM) have tried their best to upholder their fiduciary obligations to the ‘other people’ whose money they manage. The market taunts them with its siren calls back into the waters.


VIX is working on a divergence to the inverse of SPX, which has often foretold bad things going forward.

vix & spx

What’s it all mean?

Well, sentiment is a lousy timer, but when the top arrives it will be extremely over-bullish. As for the pictures above…

  • CPCE’s 10 week EMA looks dangerous here and now.
  • AAII is dangerous, but are we going to get a ‘WHOA!’ bull killer spike event as in January 2018?
  • NAAIM has generally been set up for a top, but they are more skittish up and down as they alternatively chase and hide from the market. Bob and weave style.
  • The VIX divergence is a concern. But as per the Q4, 2019/Q1, 2020 instance, it can drag on for a while before it activates, if it activates.

The story now is that the Fed will not let markets drop. It’s a pervasively told and believed story. And at some point it will not be true. Ah, timing…

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