As of today the 2CS of bearish sentiment (five day running total of each day's product of CBOE VXO and each day's CBOE combined P/C ratio) is 91.69 which is the lowest it has been in 2009. The highest reading this year was 256.50 on March 5, 2009. the highest for 2008 was 463.19 on November 21, 2008. That November reading was also the highest bearish reading since I began computing it daily in 1996. The lowest ever reading for this bear sentiment measure was 41.38 on November 20 (hmmmm...there's that date again), 2006 and nearly matched by low 40's readings in December until Christmas 2006. There were a few last low 40's readings in the week of February 5-9, 2007.
Longer bear market rallies as in 2001 and 2002 and the rally to May in 2008 saw the 2CS reach readings in the 70's, so it is reasonable to expect we will see such readings with a lot more bullish excitement before this rally is over, whether it is bear rally or a first phase of a new bull market.
The last time that 2CS was in the low 90's in this rally from March was July 21 when the SPX closed at 954.60 and on August 5 when the SPX closed at 1002.70. So there has been a "stealth" SPX move up of about 75 SPX handles since July 21 without moving the 2CS off of neutral sentiment levels.
I am of course aware that other sentiment indicators looked at by other analysts say that US stock market sentiment is extremely bullish and has been for the past month. Compared to March and last November, it may seem so; but historically it is still muted as judged by the 2CS. Suggestions that the data have changed have been raised in various places or that VIX indexes were being manipulated by new derivatives based on VIX. The CBOE combined P/C ratio has not changed any computation rules since January 2005. Those most knowledgeable about all the VIX's, specifically including Bill Luby http://vixandmore.blogspot.com/ , concluded that there is no evidence for a manipulated VIX, and that VXO, which I use for historical real time continuity, would be virtually impossible to manipulate as it has no options or futures based on it. Also some suggestions have been made that very low interest rates might cause dislocations of VXO or PCR, as it has done with backwardation in SP futures to SPX. But we have had low interest rates before (2002-2004) with no such effects noted.
Based on my daily work with the indicator since 1996, I think the stock markets still have a good run ahead of them. The longer the 2CS remains high due to frequent small pullbacks, the longer the markets can run and the higher they can go. Likewise if markets start to get very frothy quickly with multiple big up days 2CS could sink unto the 70's in a few weeks to a month. That is when other timing and technical studies will be helpful to decide if that is a likely intermediate term top or we really are in a new bull market.
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