Investor sentiment tends to move in broad cycles. One of my favorite ways to gauge this cycle is using my Wall of Worry indicator which sums a number of different business and consumer sentiment surveys in order to gauge the long-term view on the level of fear in the markets at any given time. Since it’s been a while since I last updated the indicator it might be useful to put things in perspective.
The indicator has been very useful over the last 20 years in gauging long-term market bottoms, but has been less useful gauging tops. The latest reading of 76.2 is a relatively neutral reading when compared to the last few market cycles. Fear levels have come way off their 2010 levels and only spiked a bit during the most recent recession scare. Big bottoms have tended to occur over readings of 90. Recent readings are far from those levels, but also not nearing past levels of complacency. Sp I don’t think it’s safe to say that investors are becoming complacent just yet though. I would want to see readings in the low 60′s or below before beginning to feel really uncomfortable about the shrinking “wall of worry”.
In short, the wall of worry is still there, but it’s not nearly as high as it has been in recent years….
Sentiment may be more confusing at tops, generally because some tops tend to be, wide in time …like a ‘head and shoulders’ top, or a double top (vs quick spikey lows)…. AAII sentiment and Investors Intelligence bulls peaked about one year ago at theoretical ‘left shoulder’…more recent sell off at ‘right shoulder’ gave less of a bullish extreme warning although the price drop was worse. This is a nice composite of sentiment posted here. Thanks! I hope to see it more often or see a permanent link to it.
This is fascinating given what we are facing, however “known, unknowns” is not as scary as “unknown, unknowns” and the market is a discounting mechanism.
It appears the LTRO has breathed new risk life into the world’s markets.
I agree CW. Hats off to Mr. Draghi. LTRO was a very well timed, proactive, and absolutely vital move. It gave the markets more confidence than it gave me though. It’s looking less and less like one of my better decisions.
S&P 1302? OK, I can’t stand it. One more short and I’ll quit argueing. Got my stop set .75% below my sds buy@17.91. May my will be imposed.
MS – I stop shorting the broad market in late 2009 after I figured out the the powers that be will stop at nothing to prop this market up. I remember Richard Russell way back in 1998 saying the fed would stop at nothing and he was right. To go against this is a sure money loser unless you are the nimblest and most disciplined of traders. Of course those powers that be be and their actions will/are leading to the next blow out but when that will be is anyone’s guess. Good luck on your short.
@Michael, you may have to wait as long as Valentine’s Day in Feb for a turnaround. See this: http://www.marketanthropology.com/ As Keynes said: “Markets (and people) can remain irrational far longer than you or I can remain solvent (or sane).”
I concur that the LTRO kicked the EU can down the road, just as sentiment was getting too bearish, too many shorts. So of course, Mr. Market continues to climb the wall of worry.
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Investor sentiment tends to move in broad cycles. One of my favorite ways to gauge this cycle is using my Wall of Worry indicator which sums a number of different business and consumer sentiment surveys in order to gauge the long-term view on the level of fear in the markets at any given time. Since it’s been a while since I last updated the indicator it might be useful to put things in perspective.
The indicator has been very useful over the last 20 years in gauging long-term market bottoms, but has been less useful gauging tops. The latest reading of 76.2 is a relatively neutral reading when compared to the last few market cycles. Fear levels have come way off their 2010 levels and only spiked a bit during the most recent recession scare. Big bottoms have tended to occur over readings of 90. Recent readings are far from those levels, but also not nearing past levels of complacency. Sp I don’t think it’s safe to say that investors are becoming complacent just yet though. I would want to see readings in the low 60′s or below before beginning to feel really uncomfortable about the shrinking “wall of worry”.
In short, the wall of worry is still there, but it’s not nearly as high as it has been in recent years….
Sentiment may be more confusing at tops, generally because some tops tend to be, wide in time …like a ‘head and shoulders’ top, or a double top (vs quick spikey lows)…. AAII sentiment and Investors Intelligence bulls peaked about one year ago at theoretical ‘left shoulder’…more recent sell off at ‘right shoulder’ gave less of a bullish extreme warning although the price drop was worse. This is a nice composite of sentiment posted here. Thanks! I hope to see it more often or see a permanent link to it.
This is fascinating given what we are facing, however “known, unknowns” is not as scary as “unknown, unknowns” and the market is a discounting mechanism.
It appears the LTRO has breathed new risk life into the world’s markets.
I agree CW. Hats off to Mr. Draghi. LTRO was a very well timed, proactive, and absolutely vital move. It gave the markets more confidence than it gave me though. It’s looking less and less like one of my better decisions.
S&P 1302? OK, I can’t stand it. One more short and I’ll quit argueing. Got my stop set .75% below my sds buy@17.91. May my will be imposed.
MS – I stop shorting the broad market in late 2009 after I figured out the the powers that be will stop at nothing to prop this market up. I remember Richard Russell way back in 1998 saying the fed would stop at nothing and he was right. To go against this is a sure money loser unless you are the nimblest and most disciplined of traders. Of course those powers that be be and their actions will/are leading to the next blow out but when that will be is anyone’s guess. Good luck on your short.
@Michael, you may have to wait as long as Valentine’s Day in Feb for a turnaround. See this: http://www.marketanthropology.com/ As Keynes said: “Markets (and people) can remain irrational far longer than you or I can remain solvent (or sane).”
I concur that the LTRO kicked the EU can down the road, just as sentiment was getting too bearish, too many shorts. So of course, Mr. Market continues to climb the wall of worry.
Notify me of follow-up comments via e-mail
© 2009 pragcap.com · Register for PC
Investor sentiment tends to move in broad cycles. One of my favorite ways to gauge this cycle is using my Wall of Worry indicator which sums a number of different business and consumer sentiment surveys in order to gauge the long-term view on the level of fear in the markets at any given time. Since it’s been a while since I last updated the indicator it might be useful to put things in perspective.
The indicator has been very useful over the last 20 years in gauging long-term market bottoms, but has been less useful gauging tops. The latest reading of 76.2 is a relatively neutral reading when compared to the last few market cycles. Fear levels have come way off their 2010 levels and only spiked a bit during the most recent recession scare. Big bottoms have tended to occur over readings of 90. Recent readings are far from those levels, but also not nearing past levels of complacency. Sp I don’t think it’s safe to say that investors are becoming complacent just yet though. I would want to see readings in the low 60′s or below before beginning to feel really uncomfortable about the shrinking “wall of worry”.
In short, the wall of worry is still there, but it’s not nearly as high as it has been in recent years….
Sentiment may be more confusing at tops, generally because some tops tend to be, wide in time …like a ‘head and shoulders’ top, or a double top (vs quick spikey lows)…. AAII sentiment and Investors Intelligence bulls peaked about one year ago at theoretical ‘left shoulder’…more recent sell off at ‘right shoulder’ gave less of a bullish extreme warning although the price drop was worse. This is a nice composite of sentiment posted here. Thanks! I hope to see it more often or see a permanent link to it.
This is fascinating given what we are facing, however “known, unknowns” is not as scary as “unknown, unknowns” and the market is a discounting mechanism.
It appears the LTRO has breathed new risk life into the world’s markets.
I agree CW. Hats off to Mr. Draghi. LTRO was a very well timed, proactive, and absolutely vital move. It gave the markets more confidence than it gave me though. It’s looking less and less like one of my better decisions.
S&P 1302? OK, I can’t stand it. One more short and I’ll quit argueing. Got my stop set .75% below my sds buy@17.91. May my will be imposed.
MS – I stop shorting the broad market in late 2009 after I figured out the the powers that be will stop at nothing to prop this market up. I remember Richard Russell way back in 1998 saying the fed would stop at nothing and he was right. To go against this is a sure money loser unless you are the nimblest and most disciplined of traders. Of course those powers that be be and their actions will/are leading to the next blow out but when that will be is anyone’s guess. Good luck on your short.
@Michael, you may have to wait as long as Valentine’s Day in Feb for a turnaround. See this: http://www.marketanthropology.com/ As Keynes said: “Markets (and people) can remain irrational far longer than you or I can remain solvent (or sane).”
I concur that the LTRO kicked the EU can down the road, just as sentiment was getting too bearish, too many shorts. So of course, Mr. Market continues to climb the wall of worry.
Notify me of follow-up comments via e-mail
© 2009 pragcap.com · Register for PC
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