“Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”, John Templeton
The bears have been citing extreme greed (lack of fear) towards US stocks for months. They've been pounded by an aggressive rally to all-time highs over this period, so skepticism is warranted.
Extreme greed readings are easy to find and heavily cited today. Don't confuse frequent citation with efficacy. For example, the put call ratio is being called extreme by some. Hard to argue with the presentation. A concentrated but not necessarily extreme reading exists. Are theses readings reliable? Lots of good signals, but also many bad ones in which investors following them would have missed a strong rally. Long term review of put call ratio adds additional uncertainty as the lower bound of the ratio drops dramatically from today's trading range. Does the disciplined trader ignore data prior to 2008?
Put/Call Ratio 50dma in the top 1.6% most overbought days in 20 years.— Macro Charts (@MacroCharts) January 23, 2020
Few days ever reached this level.
In 7 out of 8 cases, Stocks topped immediately or had already peaked.
Odds remain heavily skewed for a sharp correction into February-March. $ES_F $SPX $SPY pic.twitter.com/KkqEFOkfU8
Put Call Ratio
There's no denying it. Investors are becoming more optimistic towards stocks. Eventually they'll become too optimistic/complacent. Subscribers should track the Weighted Average Sentiment reported in the Sentiment Model columns. Weighted Average Sentiment is reported as WASo and WAS1. WASo has been tested. It is not as reliable as the VIX Model, but complements it. Extreme readings (WASo > 0.75) tell us the majority is dangerously optimistic.
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