Sentiment on Stocks and Ratio Charts

Below is a brief update of a few stock market related data points we frequently discuss in these pages. Sentiment on stocks continues to be a mirror image of the gold market. Investor complacency is quite pronounced, to put it mildly.

The first chart shows Rydex ratios – with bear assets throughout 2014 stuck at historical lows, the bull-bear asset ratio has recently hit a new record high above the 20 level (i.e., 20 times more Rydex assets were invested in bull and sector funds than in bear funds). This is incidentally quite a distance from the (then) record highs set in February-March 2000.

The second chart shows HYG, the HYG-SPX ratio and the TLT-HYG ratio. The most important takeaway from this chart is that the underperformance of high yield bonds relative to big cap stocks has reached a new annual extreme. A history of past occurrences of this phenomenon was recently shown at Zerohedge. Obviously, the lead times are highly variable, so this is not a timing indicator, but it certainly is a warning.

The third chart shows how the Russel 2000 (RUT), the Nasdaq 100 (NDX) and the NYSE Composite (NYA) are performing against the S&P 500 Index (SPX). Small caps and the broader market are both underperforming the large cap stocks making up the SPX, while the largest tech and biotech companies are in turn outperforming the broader SPX. This phenomenon is typically observed near major market peaks. The problem here too is the definition of “near”, as once again, lead times tend to vary greatly (the late 1990s-2000 market so far exhibited the longest lead time in this respect).

The fourth chart shows an update of the Investor Intelligence sentiment survey. Tonight the latest data will come out, but judging from the trend this year and over recent weeks, new lows in the bear percentage could easily be reached. Last week, bears were at 14.8%, up slightly from the record low of 13.3% seen a few weeks earlier.