Weekly Sentiment Survey: Red Flag

By Callum Thomas

This article reviews the data from the latest weekly sentiment survey we conduct over on Twitter.  The survey measures respondents’ equity and bond positioning/view – differentiating between whether the view is bullish or bearish for technical or fundamental reasoning.  The latest results showed a further decline in net bullishness on the equity survey, driven by an increase in technical bears (+7pts) and drop in technical bulls (-6pts), albeit the fundamentals bull-bear spread ticked up.  At a highest level it shows a divergence between price and sentiment… a bearish divergence.

The first two charts show how sentiment is rolling over vs price, which has in the past flagged an impending selloff.  Likewise the sentiment vs VIX chart shows a gap opening up. This gap seems to be implying an expected VIX level of at least 13-14 vs the current 9-10.  This lines up with the commentary in the latest Weekly S&P500 #ChartStorm (“Overbought and Overhyped”).

Finally, the last chart shows how “fundamentals” sentiment has been tracking in the equity and bond surveys, and how there has actually been a big improvement here.  So taking this all together I would say there is a reasonable chance of a sell-off, but if the improved fundamentals sentiment is anything to go by such a selloff would probably be short-lived.

The overall bulls vs bears spread has rolled over.  This contrasts with higher prices and has in the past been a red flag for markets.

On a similar note, the bull/bear spread (shown in the graph below, inverted or upside down), has opened up a gap vs the CBOE Volatility Index, and is suggesting a higher VIX from here.

Finally, the “fundamentals” sentiment picture is still looking pretty good, with the upturn in equity fundamentals bullishness confirmed by that observed in the bond market.

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