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BEARS TOO BIG FOR THEIR BRITCHES? (0900 EDT/1300 GMT)
A number of contrarian measures of sentiment may have reached levels that can suggest excessive bearishness, with market players overly confident in further declines.
The S&P 500 ended Tuesday down around 13% from its early January record close. Last Friday, the CBOE equity put/call ratio spiked to 87%, which was its highest reading since March 19, 2020, or just two trading days prior to the S&P 500's March 23, 2020 pandemic-crash closing low.
Additionally, the Invesco QQQ Trust Series 1, which tracks the Nasdaq 100 index, ended Wednesday down around 22% from its November record close.
So far this week, the Proshares Ultra Short QQQ ETF , which seeks a return that is -3x its underlying benchmark, has posted average volume of around 136 million shares per day.
If this rate of turnover persists Thursday and Friday, this ETF can trade around 680 million shares this week. Such a reading would be record weekly volume for this ETF by far. The highest SQQQ weekly volume ever was around 494 million shares for the week ended March 4, 2022. The QQQ put in a significant low just over one week later, leading to a 17% advance over just the next 11 trading days.
As well, comparing the daily raw money flow (RMF) (typical price x volume) in the SQQQ to the Proshares UltraPro QQQ , the 3x bull version, also provides another interesting insight:
Using Refinitiv data back to early 2010, the SQQQ RMF/TQQQ RMF ratio ended Wednesday at 114%. That is the second reading greater than 100% in the past four trading days, and the highest level since a 136% reading on Dec. 24, 2018. Back then, the QQQ's ended a bear-market decline on that day.
It now remains to be seen if this relative shift in favor of the bear-side has become sufficiently intense to now catch bears flat-footed, or if they will continue to steam roll the bulls.
Meanwhile, last week, bulls remained depressed in the American Association of Individual Investors (AAII) Sentiment Survey - click here:
FOR THURSDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE:
(Terence Gabriel is a Reuters market analyst. The views expressed are his own)