I explained this week how I thought sentiment was going to converge. It has been my view that we had two sentiments in the market: We had the love for tech stocks and the hate for nearly everything else. I thought we'd see the down-and-outers rally and along with it sentiment for those stocks would lift, rising to meet the giddiness of the tech stocks.
The Investors Intelligence bulls rose to 51.3% this week, which is high but not extreme. On Thursday we saw the American Association of Individual Investors (AAII) bulls jump 15 points to 44.5%. This is the highest reading since late 2021. The bears fell 12 points to their lowest reading since late 2021 as well.
While I expected the American Association of Individual Investors would see a shift, I did not expect the shift to be so massive. I would note neither reading is extreme but the rapidity of the shift is what strikes me.
If that change in sentiment wasn't enough for you, we saw the National Association of Active Investment Managers (NAAIM) increase exposure to the market from 54 to 90. That is quite a jump in one week, but it is also the first reading that high since the first week of January 2022. Well, technically, January 2022 saw exposure at 89 and change, so this is the highest since November 2021, but that's nitpicking. It's a massive change in market exposure in just one week.
Of course Barron's, in an effort to jump on the train, had a preview of this weekend's magazine with a bull on the cover noting stocks are heading higher.
Here, I was thinking it would take a few weeks for folks to get all bulled up, and, instead, it has happened in what feels like a New York Minute!
I should probably also add that the International Securities Exchange call/put ratio has been quite high for a few weeks now -- that's a lot of calls being bought -- that the 21-day moving average has soared. It is not yet at that late 2021 area nor has it rolled over yet (rolling over is part of the extreme) but this too shows us the huge shift in bullishness.
Naturally all of these indicators are released on a day the S&P rises 26 points and the breadth is flat. But we're not terribly surprised since this is an either/or market and the small caps had reached resistance. What we do not want to see is the market get narrow again.
Narrow markets this time will roll the indicators over. Only this time they would be heading down with sentiment leaning too bullish.
The short-term Oscillator will be back to overbought midweek next week so with all this newfound bullishness and the Fed meeting next week we should probably look for a bout of volatility.