Weekly equity sentiment poll show a clear shift in mood towards bearishness [CHARTS]

Here’s a quick note looking at some charts created using data from the latest weekly equity sentiment poll I’ve been running. As a reminder, theW eekly Equity Sentiment Pollu sesTwitter polling and distinguishes between whether respondents are bullish or bearish primarily on the back of fundamental vs technical analysis reasons.

The first chart shows the trends in the responses for each of the options. The latest results show more or less an extension of the existing trends e.g. bearish fundamentals has been trending up, likewise bearish technicals has been trending up and the bullish indicators have been edging down.

Moving on to the overall bulls vs bears sentiment spread vs the S&P500, the chart shows a continuation of the bearish divergence previously seen (price up, sentiment down). There’s 2 ways to read this: 1. It’s classic bearish divergence and a correction or selloff is coming; and 2. It’s simply a healthy reset of sentiment after getting too optimistic, and now the path is clear for further upside as the bears have already gone short or closed long positions.  Personally, I would err on the side of caution.

Michael Mauboussin: Here’s what active managers can do

michael mauboussin, Credit Suisse, valuation and portfolio positioning, capital markets theory, competitive strategy analysis, decision making, skill versus luck, value investing, Legg Mason, The Success Equation, Think Twice: Harnessing the Power of Counterintuition, analysts, behavioral finance, More Than You Know: Finding Financial Wisdom in Unconventional Places, academics , valuewalkThe debate over active versus passive management continues as trends show the ongoing shift from active into passive funds. Q2 2020 hedge fund letters, conferences and more At the Morningstar Investment Conference, Michael Mauboussin of Counterpoint Global argued that the rise of index funds has made it more difficult to be an active manager. Drawing Read More

Another way of viewing it is comparing the overall bull/bear spread against theCBOE VIX.  Interestingly enough a significant divergence has opened up – the VIX has gone lower and the level implied by sentiment has gone higher.  In fact the current level of the bulls vs bears sentiment indicator would suggest a VIX level around 16 vs currently around 11.  So either the poll respondents are too bearish, or we’re in for an impending and material VIX spike.

The latest results of the weekly equity sentiment poll show a clear shift in mood towards bearishness, and the unresolved question remains as to whether this is a harbinger of a selloff or correction or actually a contrarian bullish signal.  Personally I would err on the side of caution, particularly given the potential for selling the fact/disappointment on the “Trump trade” and also given the bearish divergence seen for the S&P500 (as discussed in the latestS&P500 #ChartStorm).
Interested to hear alternative interpretations…
Follow us on:

Previous articleAllison Schroeder: “Hidden Figures” | Talks @Google
Next articleBillionaires Give Wise Advice To Entrepreneurs
Topdown Charts: "chart driven macro insights" Based in Queenstown, New Zealand, Topdown Charts brings you independent research and analysis on global macro themes and trends. Topdown Charts covers multiple economies, markets, and asset classes with a distinct chart-driven focus. We are not bound by technical or fundamental dogma, and instead look to leverage any relevant factor to capture the theme. As such, here you will find some posts that are purely technical strategy, some that just cover economics and data, and some posts that use multiple inputs to tell the story and identify the opportunities. Callum Thomas Head of Research Callum is the founder of Topdown Charts. He previously worked in investment strategy and asset allocation at AMP Capital in the Multi-Asset division. Callum has a passion for global macro investing and has developed strong research and analytical expertise across economies and asset classes. Callum's approach is to utilise a blend of factors to inform the macro view.