Investment Risk Elevates

Extreme bullish sentiment, pushes risk arrow farther to the right.

By Steve Blumenthal, CIO
CMG Capital Management Group

Trade Signals, Wednesday Nov. 26, 2014 —  Trend evidence remains positive as measured by Big Mo and the 13/34-Week EMA on the S&P 500. Sentiment is far too bullish, suggesting short-term caution.

Sentiment has reached the extreme bullish state about 28.5% of the time since 1994. The average return is a -10% when such extremes have been reached. The simple message is to be weary of crowds at extremes.

Investment Risk Elevates: Due to current extreme bullish sentiment, I’ve moved the risk arrow farther to the right.

Conclusion: Trend evidence remains positive and don’t fight the Fed or the tape remain the important theme. Own equities (but hedged).

As for the bond market: The Zweig Bond Model remains bullish. High yield has turned higher. We are trading back into high yield today. Overall, bond yields are low and thus provide less value to a portfolio. Inflation is not an issue currently. Given the ultra low yields on fixed income, we suggest a more strategic (tactical) approach with the portion of your portfolio allocated to bonds.

Included in this week’s Trade Signals:

• Cyclical Equity Market Trend: Cyclical Bullish Trend for Stocks Remains Bullish (as measured by NDR’s Big Momentum indicator and separately by the 13/34-Week EMA S&P 500 Index Trend Chart)
• Weekly Investor Sentiment Indicator – NDR Crowd Sentiment Poll: Extreme Optimism
• Daily Trading Sentiment Composite: Extreme Optimism
• The Zweig Bond Model: Cyclical Bull Trend for Bonds (supporting longer-term treasury and Corporate bond exposure). Click here for notes on “How To Track The Zweig Bond Model” on your own.

For the full story see Trade Signals – Bullish Trend Evidence Remains – Investor Sentiment Too Optimistic