FEAR AND GREED CONSENSUS: Investors Throw Caution To The Wind (Positive Consensus/Bear Market Indicator)

Let the gluttony continue!

Let the gluttony continue!

June 9, 2014

After a few start and stops, investors appear to have renewed their commitments to investing in stocks according to a snapshot of the CNN Fear and Greed sentiment indicator.

Since our last peek into the index this past March, the index moved downward into the Extreme Fear level but has since recovered nicely and is now back entrenched in the Extreme Greed zone. Breaking down the indicator we find the following:


  •   The S&P 500 is 4.94% above its 125-day average compared to 5.16% in March. This is still above the average than has been typical during the last two years and rapid increases like this often indicate extreme greed.
  •   During the last five trading days, volume in put options has lagged volume in call options by 45.64% (vs 47.29% in March) as investors make bullish bets in their portfolios. This is among the lowest levels of put buying seen during the last two years, indicating greed on the part of investors.
  • Stocks have outperformed bonds by 3.09 percentage points during the last 20 trading days versus 4.97% in March. This is still close to the strongest performance for stocks relative to bonds in the past two years and indicates investors are rotating into stocks from the relative safety of bonds.
  • The McClellan Volume Summation Index measures advancing and declining volume on the NYSE. During the last month, approximately 13.88% more of each day's volume has traded in advancing issues than in declining issues (vs 6.71% in March), pushing this indicator towards the upper end of its range for the last two years.
  • The CBOE Volatility Index (VIX) is at 11.51 compared to March when it was at 14.63, which is at multi-year lows. This indicates that market risks appear low.
  • The number of stocks hitting 52-week highs exceeds the number hitting lows and is at the upper end of its range, indicating continued appetite for stocks.
  • Investors in low quality junk bonds are demanding 2.16 percentage points in additional yield over safer investment grade corporate bonds compared to March when the spread was 2.20. This spread is still lower than what has been typical during the last two years and indicates that investors are pursuing higher risk strategies.

It's all about stocks again and it does' t matter what the company does. Investors have thrown caution to the wind and are gobbling anything up. Risk? Who needs it. Risk is so 20th century. If you are getting an unsettling feeling you have heard this before back in the day, say maybe around 1999, then you are correct. It appears history is repeating. Retail investors are back in full force, The use of borrowing or margin to buy stocks is posting records month after month. Taxi companies like Uber are now worth more than probably every taxi company on the planet. We can thank our Central Banks for keeping the punch bowls full and now that the European Central Bank is in the game now, the party could continue on. At some point though, something is going to click and a realization that pumping asset prices without regard to risk profile and economic fundamentals is not sustainable. Until then, the Gatsby economy rolls on.