From the desk of Willie Delwiche.
Key takeaway: Optimism remains widespread from a cyclical perspective but history shows that it can (and in the past, has) remain elevated for extended periods of time. Options data show the record surge in call activity over the past year has stalled. If the speculative fever that has helped fuel recent gains is breaking, resiliency beneath the surface and the continued tailwind provided by better than expected earnings and economic data will be increasingly important. After an unprecedented period of positive surprises, we just don’t know how investors would respond to disappointment at this point. We do know that stocks are most vulnerable when optimism is being unwound.
Sentiment Report Chart of the Week: Speculative Fever Breaking?
Equity options activity hints that investors are regaining their senses after a feverish bout of speculation. After an incredible surge, call activity may be rolling over.