CMG Equity Market Risk Barometer: Short-term Investment Sentiment has reached Extreme Pessimism – suggesting a bullish equity investment posture.
By Steve Blumenthal, CEO, CMG Capital Management Group
Interestingly, investor sentiment, as measured by NDR’s Daily Trading Sentiment Composite, has been in the extreme pessimism zone about 26% of the time. During which the S&P 500 Index has gained 33% per annum (12-30-1994 to present. Note data in the chart below). During periods of extreme optimism (about 28% of the time) the S&P 500 Index declined nearly 11% per annum. Data that shows the crowd is usually wrong at sentiment extremes.
I like combining investor sentiment with trend evidence. My favorite measure Big Mo, while weakening, remains in a buy signal. Also, the 13/34-Week EMA remains bullish as you’ll see in the following charts. Further, volume demand continues to be stronger than supply. This too supports a bullish view.
Yet overall, risk remains high. Though short-term bullish, it is important to keep in mind that the cyclical bull is aged, overvalued and we are near a change in Fed policy. Hedge your equity exposure and look to trend evidence to help you mitigate downside loss.
As for bonds, it has been a wild few months. The Zweig Bond Model (a trend based process) remains in a “SELL” – continuing to suggest that short-term bond maturities are favored over long-term maturities.
Included in this week’s Trade Signals:
- Cyclical Equity Market Trend: The Primary Trend Remains Bullish for Stocks
- Volume Demand Continues to Better Volume Supply: Bullish for Stocks
- Weekly Investor Sentiment Indicator:
- NDR Crowd Sentiment Poll: Neutral Optimism (short-term Neutral for stocks)
- Daily Trading Sentiment Composite: Extreme Pessimism (short-term Bullish for stocks)
- Recession Watch – My Favorite Recession Forecasting Chart: Currently signaling No Recession
- The Zweig Bond Model: The Cyclical Trend for Bonds is Bearish
See the full story and important disclosures at Trade Signals – Daily Trading Sentiment Reaches Extreme Pessimism – Signaling Buy.