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ISE Sentiment Extremes & The Stock Market at Trader’s Narrative





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Since we are considering whether this is a potential top, I thought a closer look at the ISE Sentiment data would be helpful. This is the options transactions on the ISE and it is predominately retail traders so it can help us to zero in on the more novice participants. Since the ETF and index options can skew things, I discarded them and only included the equity only data. Then I also charted a simple 10 day moving average to smooth out the daily volatility.

ISEE index 10 day moving average chart

I featured a similar chart the Sentiment Overview for mid May but it didn’t have as much data as this one. We are getting up there, but not as high as before. The 10 day moving average of the ISEE Sentiment Index is 181. That’s the highest since January 2nd 2008 when it reached 186.9.

Also notice that the March 2009 stock market low doesn’t even register as a blip on the 10 day moving average.

I also looked at the ISE equity only data and focused on any 250 and above - meaning that for every 100 puts, 250 or more calls were bought on that day. Then I looked what the S&P 500’s return was going forward from that day for 1 month, 3 month and 6 month intervals. Here are the results:

There is a definite negative bias, but it isn’t overwhelming. If anything, the market is flat to mildly negative. But we haven’t seen such a wildly optimistic day in a long time. The last time was on October 29th, 2007. Also, notice that the 6 month negative returns start to pile up from June 2007 and onwards. Before that, things are basically flat.

To see the flip side (extreme lows) check out ISE Sentiment: A Closer Look - but note that the data for this includes all securities (equities, ETFs and indexes).

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3 Responses to “ISE Sentiment Extremes & The Stock Market”  

  1. 1 dacian

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    babak. how do you setup your chart? yours is nicer than mine :)

  2. 2 Babak

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    dacian, I downloaded the CSV file then made my own eye candy :)

    look for the little icon with a greenish icon downward saying “Download all available ISEE Historical Data”

  3. 3 dacian

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    hmm, I see; thanks

    do you use Excel for that?

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