Bearish Sentiment Rises, But Not By Much

Looking over the various sentiment indicators over the weekend, it became noticeable that market bears have not yet moved to position themselves aggressively for more downside. This does by itself of course not mean that the recent market decline will immediately continue, but it is nevertheless noteworthy. Usually most of the indicators shown below travel a bit further before a short or medium term low is put in. What makes this surprising is that the favorite playground of the bulls has recently been especially weak (namely, the tech heavy indexes, such as the NDX).



The first thing that stuck out was the fact that cumulative net cash flows into Rydex bear funds continue to flatline:












There has been some selling of the Rydex bull and sector funds, but the bears have decided to stand pat – click for better resolution.



The NDX, i.e., the market's high beta sector preferred by traders during bullish phases, has been quite weak – click for better resolution.



So we next took a look at a few other data, namely options and futures positioning and surveys. In the options arena, people have begun to buy more puts, but as of yet put-call ratios have not reached levels normally associated with lows.



The options speculation index by sentimentrader measures all opening transactions across US options exchanges and groups them by bullish and bearish types (e.g. shorting a put will be counted as bullish as will buying a call, and vice versa). It has begun to move lower, but is currently in no-man's land – click for better resolution.





The CBOE equity put-call ratio is trending up, but has also not yet reached the region normally associated with market lows (which is indicated by the red dotted lines) – click for better resolution.



The recent extremes in futures positioning have also reversed, but once again the move is not very big yet. To this it should be noted that the hurricane has robbed us of two day's worth of trading last week – the currently available data are as of October 30.



The dollar-weighted net commercial position of all stock index futures (inverted) – or put differently, the inverse of the net speculative position.  It has turned, but usually tends to travel further in the new direction – click for better resolution.


Surveys have been a mixed bag for a while now. Some still show excessive bullishness (such as Consensus Inc, which shows a bullish consensus of 65%), others such as AAII have indicated the opposite for some time (a lack of bullish enthusiasm).

Of interest may be in this context  that the Hulbert Nasdaq sentiment index (which measures the positioning recommended by stock market newsletter writers) has reached minus 37.5%, i.e., a 37.5% short position is recommended on average. This is quite strange, as it seems that very few people are acting upon this recommendation at this point. Still, it is close to a level where lows have occurred previously.




Charts by: stockcharts, sentimentrader, decisionpoint.



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One Response to “Timid Bears”

  • RedQueenRace:

    The SPX 200 DMA was at 1378.93 and rising coming into today. Folks may not get aggressively short until it is broken.

    Friday, the SPX got slapped back at its 50 DMA. It was 1434.46 coming into the day and the SPX topped at 1434.27. This level is worth watching and using for a short with a pretty tight stop if the market tries to rise again.

    Last week while the markets were closed post-Sandy the lowest the ES traded overnight was 1393.00. With the fair value premium at -4.66 coming into today that equates to an SPX of roughly between 1397 – 1398. That level was never seriously challenged when full trading resumed. This level should get tested eventually during a full session but between it and the 200 DMA there isn’t much reason to be positioning for a lot of downside at this point even if the market is going to pull down to those levels.

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