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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 are usually not but “all in” for shares.
Sooner or later, this raging and relentless bull market has to decelerate. Proper?!? However as you will see from a fast assessment of three key market sentiment indicators, there might nonetheless be loads of room for additional upside in danger property.
As we speak we’ll break down three of the market sentiment indicators I am following to trace a possible market prime, and alongside the best way I will share how a contrarian mindset might 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, trying on the quantity of put choices (implying a bearish wager) vs. name choices (indicating a bullish wager). I am utilizing the fairness put/name ratio right here, which ignores the amount in index choices and focuses as an alternative on particular person shares.
Since this can be a pretty noisy knowledge sequence, I am exhibiting the uncooked knowledge in grey and smoothing out the day utilizing a 5-day easy shifting common in pink. It’s possible you’ll 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 means 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’d not say the identical for the AAII survey. This weekly survey of the members of the American Affiliation of Particular person Buyers typically turns into overheated towards the top of a bullish market part, with the p.c of bulls pushing above 50% of respondents.
Final Thursday’s studying got here in just under that, registering a 49% bullish studying, with bears representing round 21% of the survey individuals. So whereas there are far more bulls than bears, till the bullish studying pushes above 50%, I am inclined to imagine there may very well be extra upside earlier than I’d label this as a “euphoric” studying. Word how many of the swing highs over the past 18 months have seen a bullish studying above 50!
NAAIM Publicity Index Implies Extra Upside Potential
Whereas the AAII survey entails a gaggle of particular person traders, the NAAIM Publicity Index options responses from energetic cash managers who’re members of the Nationwide Affiliation of Lively Funding Managers. This survey asks for individuals to share their present allocation to equities, and responses can vary from -200% to +200%.
The most recent studying right here was round 90%, just 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’d contemplate 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 true across the nook.
I really like having the ability to mix totally different sentiment indicators into one “grasp” chart, so I can simply observe their indicators and search for affirmation throughout totally 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.
Word that this can be a weekly chart and offers a great overview of sentiment indicators. Make sure you assessment the each day charts for additional element, and keep in mind that aware traders acknowledge the worth, breadth, and sentiment can and must be used collectively!
For extra on these sentiment indicators and the way I am monitoring their indicators in October 2024, take a look at 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 individual 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 means signify the views or opinions of another particular person or entity.
David Keller, CMT is President and Chief Strategist at Sierra Alpha Analysis LLC, the place he helps energetic 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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