It's been a while since I've done a complete version of sentiment analysis, and this week with SPX and INDU near YR1s this is a good time. I use 4 components: put-call ratio, ISEE index, NAAIM exposure index and AAII survey.
Sum
Daily put call at bullish extremes; weekly not
ISEE daily spike readings at bullish extremes; MAs not
NAAIM exposure index at bullish extremes, period
AAII individuals, savvy bunch, few bears but not historically high bulls either. It would be nice too see capitulation here to have extremes across the board
Tops can stretch out. Maybe we've just seen the high, maybe not. But if not with these extremes markets could easily be in a range for a month even if it manages to go somewhat higher. This would allow the longer term sentiment averages to go higher even if the shorter term measures cool off a bit.
1. Put-call
Daily put-call has just on 7/20 reached the lowest since June 2014. Backing up further, we can see that there are really very few days since 2012 that have been below this level:
A cluster of days in September 2012, probably when QE infinity was being announced, that stood as a major high for about 3 months.
Late December 2013 to late January 2014, when the market was giddy with 1 year of QE, then as everyone was massively bullish the market had the sharpest drop in about 7-8 months.
A few days in later June 2014, which was not a major top in SPX or INDU, but was near a major top in the RUT / IWM. NYA made a major top just a few days past this window that stood for more than 6 months.
If we tallied up the days from the 2011 lows, so that is near 5 years, there are only about 45 trading days that are lower than today in the 3 clusters listed above. Rough math 250 days per year, 5ish years = 1200 trading days, making recent low 3.7% percentile. You can call that an extreme, yes!
But when we change the view to weekly, it is middling. Why? Because put-call has been very high several times this year - Brexit end of June, not sure why in May, correction mid January.
Two lines on the chart below. One at the 2014 put-call lows, the other at the current level. As you can see there is a lot of room to drop and no particular extreme at current levels.
2. ISEE index
Daily spike readings
7/18 was a major spike at 156. This was the highest value since 6/8 (which was a trading high) that came in at 136. Interestingly call buyers correct a few days off the big low on 2/16 with a massive 168 which is the high for the year. Before that the major high was 187 on 12/15 and we know what happened shortly after. We can say near term upside limited and downside risks have increased just due to this very high reading.
Date from 2005 to current
10MA 68% percentile, not extreme
20MA 91% percentile, still quite bearish!
50MA 96% percentile, bearish extreme!
Date from 2014 to current
10MA 32% percentile, higher but not extreme
20MA 70% percentile, better but still
50MA 84% percentile
Very interesting - on a short term level with daily spikes we have definitely seen a significant extreme. But on other measures, not even close.
3. NAAIM exposure index
Data from 7/2006
Wow, 7/13 reading of 96 is in the top 10, so that means top 2% percentile of all readings since 7/2006. This is logical at highs, but let's consider the weeks that had higher exposure:
1/30/2013, 104 - no damage, QE steroids pushed SPX another 30 points higher to 2/19 high, followed by brief 1 week dip and prompt resumption of trend
11/27/2013, 101 - just a few weeks higher late December and early January before a -10% drop
12/11/2013, 100 - ditto
3/1/2007, - very right call buyers on the first big drop in months
1/3/2007, - eh, not so right call buyers and market struggled higher for 2 months then had very fast drop
2/25/2015, - near a trading high. markets went higher into May, June and July depending on index but not by very much in most cases
12/26/2013, 98 - see above
1/15/2014, 96 - see above
Most of the readings near limited upside and/or correction as the next larger move
4. AAII individuals - savvy bunch
Last week 7/14 was "more bullish" than this week, so using those figures comparing to data from 2005
Bulls 36% percentile even using slightly higher reading from 7/14, 53% percentile middle of pack!
Bears about 15% percentile, so few bears but not quite in extreme territory
Bull bear spread about 30% percentile
Data from 2014
Bull still low at 35% percentile
Bears also 35% percentile
So not much change compared to 2005