Chart 1: Sentiment readings are at one of the most bullish levels ever!
Source: Short Side of Long
Regular readers know that I usually do a major update on the overall market sentiment (which includes stocks, bonds, commodities and currencies) at the start of each month. However, today I will just quickly focus on three charts for the stock market sentiment. The first, seen above, is a composite sentiment survey indictor (dumb money). Essentially, current elevated sentiment readings have not been witnessed over the last decade.
Chart 2: Nova Ursa fund flows have exploded on the upside
Source: Short Side of Long
While sentiment surveys measures who said what (opinions), fund flows measure who bought and by how much (action). Interestingly, both seem to be in agreement, as the second chart confirms the current overly optimistic conditions. Nova Ursa fund flow indicator has now spiked to levels not seen since 2007 market top. In other words, Rydex traders (dumb money) are piling into stocks!
Chart 3: Call buying approaching high levels relative to historic average
Source: Short Side of Long
Finally, with the VIX extremely low and the Skew Index at the second highest level ever recorded, it is worth looking at the activity in the options market. The chart above shows that Call buying relative to Put buying is now reaching almost 1.5 standard deviations away from the recent mean and the highest levels in well over a year. Options traders (dumb money) are definitely getting excited about more upside.
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