KEY
TAKEAWAYS
- The put/name ratio measures volumes within the choices market to match bullish vs. bearish positioning.
- The AAII Survey is near the 50% bullish degree, which frequently coincides with main market tops.
- The NAAIM Publicity Index, presently simply above 90%, tells us that cash managers should not but “all in” for shares.
In some unspecified time in the future, this raging and relentless bull market has to decelerate. Proper?!? However as you may see from a fast evaluation of three key market sentiment indicators, there may nonetheless be loads of room for additional upside in threat belongings.
Right this moment we’ll break down three of the market sentiment indicators I am following to trace a possible market high, and alongside the best way I will share how a contrarian mindset may assist traders navigate a risky This autumn!
Put/Name Ratio Hits an Excessive Low Studying
Let’s begin with a measure of positioning within the choices market, wanting on the quantity of put choices (implying a bearish guess) vs. name choices (indicating a bullish guess). I am utilizing the fairness put/name ratio right here, which ignores the quantity in index choices and focuses as a substitute on particular person shares.
Since this can be a pretty noisy knowledge collection, I am displaying the uncooked knowledge in grey and smoothing out the day utilizing a 5-day easy shifting common in pink. You could discover that final week the uncooked knowledge reached its lowest degree since July 2023, indicating heavy bullish positioning. As a contrarian measure, this means to me that maybe the choices market is manner too bullish because the S&P 500 kilos to new all-time highs.
AAII Survey Has Not Reached Euphoric Ranges
Whereas the put/name ratio has reached an excessive studying, I might not say the identical for the AAII survey. This weekly survey of the members of the American Affiliation of Particular person Buyers usually turns into overheated towards the tip of a bullish market part, with the % of bulls pushing above 50% of respondents.
Final Thursday’s studying got here in slightly below that, registering a 49% bullish studying, with bears representing round 21% of the survey members. So whereas there are far more bulls than bears, till the bullish studying pushes above 50%, I am inclined to imagine there might be extra upside earlier than I might label this as a “euphoric” studying. Notice how many of the swing highs during the last 18 months have seen a bullish studying above 50!
NAAIM Publicity Index Implies Extra Upside Potential
Whereas the AAII survey includes a bunch of particular person traders, the NAAIM Publicity Index options responses from lively cash managers who’re members of the Nationwide Affiliation of Lively Funding Managers. This survey asks for members to share their present allocation to equities, and responses can vary from -200% to +200%.
The most recent studying right here was round 90%, much like the degrees we have seen over the earlier 4 weeks. If and when this indicator will get above 100%, implying respondents are leveraged lengthy equities, I might take into account the indicator to be within the euphoric vary. And when indicators like this get to a degree implying just about everyone seems to be lengthy equities, I start to wonder if a contrarian promote sign is correct across the nook.
I like having the ability to mix completely different sentiment indicators into one “grasp” chart, so I can simply observe their indicators and search for affirmation throughout completely different technical approaches. With that in thoughts, I’ve created a Grasp Sentiment Chart to assist establish if and when these indicators affirm a euphoric degree as traders get a little bit too bullish.
Notice that this can be a weekly chart and supplies a great overview of sentiment indicators. Be sure you evaluation the each day charts for additional element, and do not forget that conscious traders acknowledge the worth, breadth, and sentiment can and needs to be used collectively!
For extra on these sentiment indicators and the way I am monitoring their indicators in October 2024, try my newest video on StockCharts TV.
RR#6,
Dave
PS- Able to improve your funding course of? Take a look at my free behavioral investing course!
David Keller, CMT
President and Chief Strategist
Sierra Alpha Analysis LLC
Disclaimer: This weblog is for instructional functions solely and shouldn’t be construed as monetary recommendation. The concepts and techniques ought to by no means be used with out first assessing your personal private and monetary scenario, or with out consulting a monetary skilled.
The writer doesn’t have a place in talked about securities on the time of publication. Any opinions expressed herein are solely these of the writer and don’t in any manner symbolize the views or opinions of every other individual or entity.
David Keller, CMT is President and Chief Strategist at Sierra Alpha Analysis LLC, the place he helps lively traders make higher choices utilizing behavioral finance and technical evaluation. Dave is a CNBC Contributor, and he recaps market exercise and interviews main consultants on his “Market Misbehavior” YouTube channel. A former President of the CMT Affiliation, Dave can also be a member of the Technical Securities Analysts Affiliation San Francisco and the Worldwide Federation of Technical Analysts. He was previously a Managing Director of Analysis at Constancy Investments, the place he managed the famend Constancy Chart Room, and Chief Market Strategist at StockCharts, persevering with the work of legendary technical analyst John Murphy.
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