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Weekly Sentiment Poll - 16 Jan 2017

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, the Weekly Equity Sentiment Poll uses Twitter 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.

equity sentiment fundamentals vs technicals

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.

sentiment poll bull bear spread vs the S&P500

Another way of viewing it is comparing the overall bull/bear spread against the CBOE 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.

sentiment divergence points to upside for the VIX

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 latest S&P500 #ChartStorm).

Interested to hear alternative interpretations...

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