NFTRH+; A Deeper Look at Sentiment

We use the basic sentiment indicators in weekly reports (AAII, NAAIM, Investors Intelligence, etc.) but my sentiment service, Sentimentrader, has daily reports that dig into more specific areas. I usually do not include them because as the last year has proven, even alarming sentiment signals can go interminably with a bullish market and I don’t want NFTRH to be an alarmist service. I want it to be measured analysis of the wider macro.

Preamble aside, we have noted the structurally over-bullish condition of the markets by Smart/Dumb money indicators, lack of pessimism amid max optimism, the depressed VIX and especially the Equity Put/Call ratio, which has seen its 10 week EMA pinned to the floor for months now.

Let’s introduce some new measures, beginning with margin debt. Bulls will argue that extreme margin debt is nothing to worry about and this chart only shows one instance of major damage from such debt levels. However, debt is higher than it was prior to the 2008 liquidation and what we can say is that like other indicators, it is a condition (as opposed to a directive) for a top of some kind, minor or major.

Risk appetite is extreme. Per sentimentrader: “This indicator measures market behavior like credit spreads, equity and foreign exchange volatility, gold prices, and sector relative performance (such as between defensive sectors like utilities and economically sensitive sectors like financials).”

Again, it is a picture that will be in place at an important market top.

The condition for a top is in place by ETF positioning as well.

Over in Rydex land, everybody is bullish and nobody is bearish. Or so it seems. That is a dangerous thing.

Retail options traders are overdone to the upside, despite not being as aggressively bullish as they were a few months ago. This is extreme when viewed over the course of history. Much like with the potential for one more fatal spike in the AAII for example, might there be one more jerk into record call options by the little guy? Regardless, the situation is high risk now.

And market bulls do not have corporate insiders on their side. Quite the contrary.

Finally, here is a roundup of short-term sentiment views of various sectors, markets and assets. This is different from the above as the data are very skittish and short-term oriented. So take it with a grain of salt. For example, the bearish gold miners are within a larger context of a recovery (bounce) from an over-bearish situation and the bullish Semiconductors are within the context of a pullback from and over-bullish situation. This stuff is for day traders, basically.