Recently, cases of individual investors driving a sharp rise in some individual stocks that appeared in the US stock market attracted widespread attention, which in turn gave rise to concerns about whether the US stock market showed signs of “excitement” or even raised potential risks. The general context of this concern is,The continued low interest rate environment since the pandemic, abundant liquidity, and the increase in residents' disposable income under large-scale financial transfers have led to an increase in the enthusiasm of retail investors to enter the market, while the monetization effect and low capital costs of a rising market have boosted the margins”Add leverage”The impulse.

Well, in the face of this market environment,The question before us is how to portray the level of sentiment in the US stock market, the amount of positions and leverage, and the abundance of liquidity in the US stock market from a microstructure?Admittedly, for the US stock market, which has many participants and a total market capitalization of 44 trillion US dollars, it is unrealistic to want to make an accurate picture. In particular, differences in internal structures, not to mention the lack of public data on some transactions realized through OTC and derivatives.

Therefore, in this article, we outline emotional leverage and capital conditions based on some commonly used and available indicators, but the list is not exhaustive.

To be clear,Unless it reaches an extreme level, technical indicators such as sentiment positions alone cannot be used as an absolute basis for judging mid-term market trends; more often it is a catalyst for boosting,That is, synchronization rather than leading indicators. For example, overbuying, crowded trading, or high leverage are induced to increase market pressure, and vice versa. Looking specifically at it,

1. Market sentiment: VIX, overbought and oversold, AAII individual investor sentiment, Market Vane trader sentiment, Put/Call ratio

i. VIX:It is the most commonly used barometer for portraying risk sentiment in US stocks. Its essence is an annualized expected volatility implicit in S&P 500 options over the next 30 days. It has average regression, low end distribution, short-term autocorrelation, no basis for timing selection, and a series of characteristics of loss in the time value of VIX products (“What does historically low volatility mean?”).

The recent rise in VIX,Volatility hit in a single day last Wednesday2018year2month5It has reached a new high since then, even surpassed2020The annual fluctuation during the epidemic was slightly abnormal. The sharp jump in VIX on 2018/2/5 caused XIV, an ETF product that is bearish on VIX, to be liquidated, and caused a series of strategies that anchor volatility, such as risk parity, to suffer significant losses, which in turn amplified the volatility.

ii. Overbought and oversold:Overbuying did not necessarily end in a sharp decline, nor was it the basis for long-term market trends, but adding other catalysts would amplify fluctuations.Overbuying has abated markedly after the recent sharp decline.

III. AAIIIndividual investor sentiment:Individual investors' sentiment over the next six months was surveyed through a weekly questionnaire sample survey. The high point of this indicator appeared in November 2020.Continued decline since this year, and recent perceptions”Retail investors are excited”It doesn't match.

IV. Market VaneFutures Market Trader SentimentAt the end of December, it was at a neutral level of 52%.

v. Call/PutProportion:Reflecting the long and short transaction ratio in the options market, it is currently 1.74. The level of excitement has declined somewhat, but it still exceeds the standard deviation of 1.6 times the historical average.

Chart 1: VIX is the most commonly used barometer for portraying risk sentiment in US stocks. Its essence is an annualized expected volatility implicit in S&P 500 options over the next 30 days

Chart 2: Overbuying and overselling is an indicator that measures the short-term emotional fullness of the market. Overbuying does not necessarily have to end in a sharp decline, nor is it a basis for judging long-term market trends

Chart 3: Market Vane futures market trader sentiment was at a neutral level of 52% at the end of December

Chart 4: The Call/Put transaction ratio is currently 1.74. Excitement has declined somewhat, but it is still above the historical average of 1 times the standard deviation 1.6

2. Market pattern: the proportion of the 200-day EMA, the proportion of increases and falls, the degree of convergence between indices and individual stocks

i. 200The proportion of individual stocks above the daily moving average:Describing the strength of market ups and downs, the current S&P 500 index is 86.8%, a slight decline from 92% at the end of December, but it is still high.

ii. The proportion of rising and falling households:When the concentration of market performance is measured, when it is too high, it indicates that the overall mood is excited; when the two diverge, if the index rises but the ratio falls, it indicates that the index is less driven by individual stocks. This has been the case since December last year.

III. Correlation between indices and implied volatility of weighted stocks: It measures the degree of convergence between the index and weighted stocks. Being at a low level means that there is a big “divergence” between the market and weighted stocks. It fell to a low of 16% before the upward trend, and soared to a relative high of 52% on Friday.

Chart 5: The share of individual stocks above the 200-day EMA. Currently, the S&P 500 index is 86.8%, a slight decline from 92% at the end of December, but it is still high

Chart 6: The proportion of rising and falling companies. When it is too high, it indicates that the overall mood is excited, and when the two diverge, such as when the index rises but this ratio falls, it indicates that the index is driven more by fewer individual stocks

Chart 7: The correlation between the implied volatility of the index and weighted stocks. Being at a low level means that the expected fluctuations of the market and weighted stocks clearly “diverged”. It fell to a low of 16% before the upward trend, and soared to a historical high of 52% on Friday

3. Investor structure and participation: overall investor structure of US stocks, institutional shareholding ratio, proportion of retail transactions

i. The structure of investors in the US stock market:Derived from the Federal Reserve's financial account table, it is a relatively comprehensive portrayal of participants in the US stock market, but currently it only ends in the third quarter.According to the latest data, the share of shares held by residents and non-profit institutions was from the first quarter38%Ascend to39.1%To a certain extent, it shows that the US stock market has indeed shown signs of retailing.

However, what needs to be clarified is that according to the Federal Reserve's definition, since this account is a “residual item”, it includes all other institutions that cannot be counted (such as some hedge funds, private equity funds, etc.), so if this indicator is directly measured as the share of individual shareholding, it will be clearly overestimated (“Analyzing the Structure of US Stock Investors and Residents' Balance Sheets”, “An Introduction to US “Shadow Banking”);

ii. Institutional shareholding ratio: Major investment institutions will regularly disclose their holdings to the SEC (Form 13F), so we can reverse the shareholding ratio. Judging from the shareholding ratio of the top 100 individual US stocks we have compiled, institutional shareholding has continued to decline since 2020, falling from 79% to around 75.8%, which is not unrelated to the increase in individual investor participation.

III. Retail trading and commission contributions: The SEC requires major retail trading platforms to regularly disclose their trading and commission data (606 rule). We compiled the 5 most commonly used platforms for individual investment in the US, such as Robinhood, TD Ameritrade, etc., and found that their trading commissions were high in the second quarter;This5The trading volume of various platforms as a percentage of total US stock transactions climbed to once in the second quarter18%The high point declined somewhat in the third quarter.

Chart 8: Data for the third quarter shows that the share of shares held by residents and non-profit institutions increased from 38% in the first quarter to 39.1%. To a certain extent, this indicates that there are indeed signs of retailization

Chart 9: Looking at the institutional shareholding ratio of the top 100 US stocks, institutional shareholding has continued to decline since 2020, from 79% to around 75.8%

Chart 10: We summarized the 5 most commonly used platforms for individual investment in the US, such as Robinhood, TD Ameritrade, etc., and found that their trading commissions reached their highest point in June

Chart 11: Furthermore, the trading volume through these 5 platforms in total US stock transactions also continued to rise. It once reached 18.2% in the second quarter and declined somewhat in the third quarter

4. Level of leverage: financing balance and size of implied leverage and unliquidated options

i. Financing balance and implied leverage:The scale of buying onmargin (buying onmargin) through brokerage financing needs to be disclosed on a regular basis. This method of adding leverage can be viewed as being dominated by individual investors. According to the latest data as of December,The financing balance exceeds7780An all-time high of 100 million dollars, accounting for 1.1% of the total market value of US stocks; however, since the size of own capital is also increasing,What is the implied level of leverage2.72, lower than2018Approaching the middle of the year3The high point of double leverage.

ii. Number of open options positions:The purpose of increasing leverage can also be achieved through options. Since the second half of 2020, the Chicago Mercantile Exchange (CBOE) hasLong options with unclosed positions (Calloption) The amount surged to21210,000 copies, a significant increase over the first half of the year30%It also raised the ratio of long, short, and unclosed positions to the highest level since 2008.

Chart 12: The latest data as of December shows that the financing balance exceeded an all-time high of 778 billion US dollars, accounting for 1.1% of the total market value of US stocks

Chart 13: However, since the size of own capital is also increasing, the implied leverage level is 2.82, below the high of close to 3x leverage in mid-2018

Chart 14: Since the second half of 2020, the number of open long options (Call Options) on the Chicago Mercantile Exchange (CBOE) has surged to 2.12 million, a sharp increase of 30% over the first half of the year

Chart 15: It also raised the ratio of long, short and open positions to the highest level since 2008

5. Financial market liquidity: Libor/FRA spreads, commercial paper spreads, currency swaps, credit spreads

i. libor/fra-oisspreads: Since the participants are mainly banks and other financial institutions, they mainly measure the liquidity situation within the financial system. This is also the main reason why this indicator soared in 2008 and not when the epidemic broke out in March 2020, because this round of the pandemic crisis mainly occurred in non-financial enterprises rather than the financial system.Currently, both are at historically low levels, indicating that the financial system is still very liquid.

ii. Commercial paper:It is the main channel for short-term corporate financing, so the liquidity situation of non-financial enterprises is measured more. In March, commercial paper interest spreads soared to a high level far exceeding the 2008 financial crisis due to the impact of the pandemic on “frozen” cash flow.However, at present, this level is also at a historically low level, indicating that the corporate financing market is still full of liquidity.

III. Currency swaps:The exchange rate spread (swap) between the US dollar and the euro and yen is mainly used to measure the degree of abundance of the global dollar. The tight liquidity of the US dollar in March caused this spread to soar, but it is also currently low.

IV. Credit spreads:Credit spreads on investment-grade and high-yield bonds measure the financing costs of long-term enterprises. They also rise rapidly when liquidity is tight or the credit market is impacted. This was the case in March 2020. Currently, both are at historically low levels, thanks to the Federal Reserve's “distorted” bond market pricing and massive liquidity investment.

Chart 16: Libor/FRA-OIS spreads mainly measure the liquidity situation within the financial system. Currently, both are at historically low levels, indicating that the liquidity of the financial system is still very abundant

Chart 17: Commercial paper interest spreads are also at historically low levels, indicating that the corporate financing market is also still rich in liquidity

Chart 18: The exchange rate spread (swap) between the US dollar and the euro yen (swap), which is mainly used to measure the abundance of the global dollar, is currently low

Chart 19: Credit spreads on investment-grade and high-yield bonds measure the financing costs of long-term enterprises. They also rise rapidly when liquidity is tight or the credit market is impacted. This was the case in March 2020

Based on the monitoring of the above indicators, it is not difficult to see thatCurrently, most of the sentiment and pattern indicators in the US stock market are in a relatively full state. The increase in retail participation, and the rise in financing leverage and options positions all make them vulnerable to external disturbances, but not all of them are at historical extremes. In the future, we need to pay attention to dynamic changes.

Furthermore, financial market liquidity is still abundant, and there has been no tightening; we believe fundamentals are also expected to provide support in the context of a new round of fiscal stimulus and accelerated vaccination.