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By Tyler Durden
Submitted by Pater Tenebrarum via Acting-Man.com,
A Quick Chart Overview
Below is an overview of charts we picked to illustrate the current market situation. The selection is a bit random, but not entirely so. The first set of charts concerns positioning and sentiment. As one would expect, these look fairly stretched at the moment, but there are always ways in which they could become even more stretched. First a look at the NAAIM exposure index:
At 101.6% net long (responses can range from 200% leveraged short to 200% leveraged long), fund managers taking part in this survey have reached a fairly one-sided extreme – click to enlarge.
What is even more remarkable than the overall positioning extreme is the fact that there were literally zero bears in the NAAIM survey for the past three weeks. In case you’re wondering, that doesn’t happen very often.
At one point even the most bearish manager was slightly net long. Not too long ago the biggest bears were actually up to 150% net short for quite a while, but their conviction has been destroyed by the post election rally. One cannot blame them, but it is still a case of remarkable unanimity regarding any remaining downside potential.
Here is a table showing the progression:
The biggest NAAIM bears have quickly moved from 150% net short to not short at all – the biggest bulls remain 200% leveraged long – click to enlarge.
Next up, a combination of “risk appetite indexes” calculated by sentimentrader (combines the Citigroup Macro Risk Index, Westpac Risk Aversion Index and UBS G10 Carry Risk Index Plus).
Risk appetite is at a multiyear high – note that this index combo is solely based on market data/ prices, there are no opinions involved – click to enlarge.
As can be seen, the Risk Appetite Index combo is firmly in blue sky territory – it is not useful as a timing indicator, but it does show that there is currently absolutely no doubt visible in any market-based indicators or prices. Everybody “knows” where the journey is going.
That is certainly interesting, since Donald Trump was supposed to create uncertainty galore – but currently certainty is actually at a three year high! As an example of Trump-related expectations, here is Paul Krugman on election night:
“If the question is when markets will recover, a first-pass answer is never.”
This was undoubtedly a wide-spread opinion when the election result became clear, with Dow futures down by more than 900 points in Asian trade overnight. So far it was the shortest “never” ever though.
Next up, the equity put-call ratio. What is interesting here is that it has recently plummeted to a low last seen in June 2015. Both marked short term peaks in trader enthusiasm.
Two rare peaks in the short term enthusiasm of option traders – June 2015 and December 2016 – click to enlarge.
What about other equity market drivers?
Source: The Exiling of Risk
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