The first half of 2020 could rank as one of the scariest ever in terms of how the stock market was moving day-by-day. While the S&P 500 Volatility Index (VIX) ultimately dropped into the high 20s at times toward quarter-end, it never felt like calmer times had really arrived. It still doesn’t.
While volatility still rears its nasty head (or lovely head – for the traders out there), investors have turned more bullish on stocks – at least from a sentiment point of view. But we are nowhere near euphoric levels despite some warnings signs such as the equity put-call ratio and insider selling activity – we talked about those on our recent weekly S&P 500 #Chartstorm. Earlier this month we detailed how President Trump was stepping up his stock market tweeting activity – another red flag?
Among the many indicators we track, we also measure sentiment in an unusual and rather unique way here at Topdown Charts – by way of Twitter, naturally.
For the first time since early 2020, our FinTwit Equity Sentiment Poll overall bulls minus bears score turned above the zero line recently. This means there are more bulls relative to bears. As you’d expect, it coincides with equities gaining ground of late.
At its lows during March and April, the polling results were some of the lowest readings we have ever seen. Can you blame everyone? Consider that the most bearish survey data came in the April-May period – well AFTER the equity market low on March 23. Investors were very concerned about a sharp stock market pullback given the enormous rally that took place off the bottom. Few trusted the rally.
Where does that leave us? And where may the S&P 500 head from here? Maybe we can glean some information from two prior periods when equity sentiment was on the mend, crossing above 0. Two such instances were in mid-2017 and Q3 2019 – albeit both periods were volatile in terms of sentiment. To ease that volatility we use the poll’s 4-week moving average.
As our sentiment data edged into positive (bullish) territory, equity markets continued to grind higher during the back half of 2017 and toward year-end 2019. So the second half of 2020 has its work cut out to match those two timeframes.
I’m not trying to suggest everything is suddenly goldilocks on the investor-feeling front. Equity sentiment at the net-flat line is really just the middle of the historical range. Anyone who proclaims that “everyone is bullish” is not looking at the data. And it’s not just our data. You can find similar results when investigating the American Association of Individual Investors (AAII) and Investor Intelligence (II) sentiment data. There’s still a long way to go on the bull-train before everyone is aboard.
Digging deeper, there are niches of the market that are seeing more elevated levels of sentiment. The gold and copper arenas fit that mold. We’ve written on gold’s potential move during the last several months, and investors are now turning giddy on the space. It’s not just precious metals – Dr. Copper has regained his/her prominence with a sharp uptick in price and consensus bulls. Overall though, commodity sentiment is near the long-term average having snapped back in a huge way from earlier this year. We continue to be bullish commodities with a timeframe of a few years.
We track a variety of sentiment and positioning gauges (as part of the tactical considerations alongside more strategic analysis) at Top Down Charts. We use both widely-followed indices & indicators and have proprietary composites we feel offer a better perspective of global macro risk appetite. You can learn more about our offerings here.
Here’s the point – the FinTwit Equity Sentiment poll is rather well-known in the Twittersphere by now. Thank you to all those who participate. Measuring the macro market pulse of investors is critical for near-term and intermediate-term asset allocation. Our data set provides this useful lens for investors. At the moment, investors have turned to a neutral feeling versus sharp pessimism during the second quarter.
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