A Rundown Of The Sentiment Indicators

The market has gone straight up and we could see a short term whack at any point. However, in order to get a lasting top we will likely need to see sentiment at an extreme or very negative news. While there are a couple of sentiment indicators at extremes the vast majority are not. Below is  a rundown of various sentiment  indicators I follow:

  • The NAAIM indicator is one of the two indicators I follow showing extreme optimism. It is sitting at a multi-year high and measures the sentiment of active investment managers.

  • The 10 day moving average of the CBOE put/call ratio is the other sentiment indicator I follow at an extreme. It scored a new one year low last week. This measures call activity versus put activity at the CBOE.  A low reading shows a lot of call activity.

  • The 10 day moving average of the ISE equity only ratio is another put/call measure. This put/call measure is not at an extreme and is not confirming the CBOE measure.  It is currently at 159 where as tops tend to occur when this is over 200.

  • The Investors Intelligence survey of newsletter writers has 26.6% bears. Tops tend to occur with this reading below 20%.

  • The AAII individual investor survey has bulls at 37%. We typically see a reading over 50% before a top. This survey is very jumpy and is my least favorite.

  • Hulbert Nasdaq market timers are recommending a 60% long position. This is high but tops typically see a 70% reading.

  • The Consensus bulls are at 63%. They were above 75% in the spring

  • The Market Vane bulls are at 64%. Typical highs are above 65%. This is very close to an extreme.

I force myself to look at a wide array of sentiment indicators. The reason I do this is because it stops me from picking and choosing the ones I like in order to affirm my bias. There are few perfect tops where every indicator is in line. But at most good tops the majority are at extremes. We are getting there but are not there yet.

No comments: