You already know that I think we're oversold mid-month, so I don't want to review all of those indicators again. But I do want to discuss sentiment, because there is a lot going on in the world of sentiment.
As I noted yesterday, the Investors Intelligence bulls are at just shy of 51%, which is an odd place to be starting a rally from. I think it means the runway is probably short, if these folks get more bullish, they will spurt that bullish number up to the high 50s in a hurry.
Then on Thursday the American Association of Individual Investors (AAII) saw the bulls pull in their horns from 42% to 34.4%. That's a step in the right direction. But they did not go to the bear camp -- they instead started fence-sitting and moved to neutral. Either way, there are still more bulls than bears. That, too, would be an unusual place to begin a rally from, although it is a better set up than the Investors Intelligence.
Then there is the National Association of Active Investment Managers (NAAIM), which you might recall were at 102 in their exposure in early August and fell to 30 in late August. They have since rebounded and are reporting in at 60. I'll call it neutral.
Now let's talk options ratios. Wednesday saw the equity put/call ratio surge to 1.14. You can see that is literally off the charts. In March we could understand it as we were in that banking crisis. In January, I believe I chalked it up to the hangover from December. But now? Weird.
Some might want to explain it away, because of "zero-days to expiration" options, but long-time readers will recall in December last year I figured that the 0dte had messed up the indicator, and it turned out all it did was exacerbate it; the indicator still worked just fine. There were far too many puts out there in the market.
But now let's look at the 21-day moving average of the put/call ratio for exchange-traded funds. We last checked in on this in early August, because it was so low, meaning the market should pull back. Now look at the surge in it in the last month and change. It has surpassed the two peaks from 2023 and is closing in on the peak from the fall of last year. Again, that's a lot of puts out there.
Crosscurrents, right? Well I have a few more for you.
The Volatility Index is now so low that I am being asked almost hourly about it. I never have a view of the VIX based on the price, but rather on the look of the chart or the Daily Sentiment Indicator. The DSI is now at 10.
Then there is the dollar, which finds its DSI at 91. You want more? Crude oil, which was shunned in June and is now loved almost like tech stocks used to be, finds its DSI at 92. The last time the DSI for oil was this high was June 2022.
I have been negative on oil for three weeks now and have been wrong, but that DSI reading tells me I shouldn't be wrong much longer.
