The recent options deals point to a “more fundamental change in outlook than a bullish tactical positioning,” said Credit Suisse.
In the last two weeks, there has been a decline in the S&P 500 bias after six months, in which option prices are measured by relying on an increase in bets.
This is a notable difference to the decline in short-term bias, as was already the case in Credit Suisse. The sustained price of the stock market has changed the way investors perceive this bull market, according to Credit Suisse.
As the S&P 500 advanced, investors positioned themselves to take advantage of new highs by calling for more call options, which would be instruments for buying shares at an agreed price.
In a note released on Monday, Mandy Xu, chief strategist of Credit Suisse shares, said by the S&P 500, a measure that tracks the prices of options by focusing on a relative decline in Paris on a rise. The near-term trend eased in the final months of 2017, implying that traders demanded more options that would benefit from higher stock prices. This was not surprising as the market was developing in the right combination of conditions: volatility, measured by the CBOE’s index, was lowest, the GOP was ready to pass the most comprehensive tax reform in decades and economies around the world were in growth mode.
“However, the longer-term bias has remained high so far,” said Xu. “In the past two weeks by 6M SPX fell 82 to 55. The long-term downward bias percentile suggests a fundamental change in prospects, rather than just a bullish tactical positioning”
In other words, traders seem to bet that stocks could continue to rise until 2018.
Morgan Stanley stock analysts have recently said that we are in the “euphoria” phase of this bull market. And it’s not hard to find evidence for that statement.
The S & P 500 has been “overbought” for at least 22 years, according to its relative strength index, which measures the size and speed of its price movements.
In all sectors, analysts are betting that the strongest increase in the market, earnings growth, will be the most impressive in a few years. According to FactSet, analysts predicting corporate earnings have made the smallest cuts in their estimates for the fourth quarter since 2010.
The American Association of Individual Investors found last week that only 15.6% of respondents were bearish, the minimum of three years and 34% a month ago.
This will continue. Therefore, it is not surprising, as Credit Suisse suggests, that it is increasingly lonely to be a bear in this market.
