Finance and Stuff

Thoughts on finance and other stuff by Johan Lindén

Tag: sentiment

S&P 500 Makes a New Multi-Year High

Some people cannot believe it — The S&P 500 and the NASDAQ 100 has made a new four-year high under what seems the be a financial Armageddon if one was to listen to the financial press. Readers here should not be surprised though. Let’s see what the last follow-up said and what to expect next.

From the last follow-up in the 23rd of April:

What can we expect next?

Most statistical signals are indicating that the market will be higher in the coming months. The risk-averse person should be out of the market while the speculative person should be buying on short-term oversold conditions and selling on overbought conditions.

What we should look for before expecting a longer change of the trend is that sentiment gets increasingly bullish while hitting new highs or that it gets stubbornly bullish while making the next correction down.

The market had a fair share of zig-zag movement and to buy the oversold conditions and sell on the overbought conditions would have been highly lucrative. So let’s make a new probability forecast:

What can we expect next?

We still have a few long and intermediate term indications of a higher market. We also just received some indications of some warning signs. According to the Hulbert Financial Digest, newsletters that are focused on the NASDAQ Composite index are now recommending a 60% net long position. It may not sound that extremely bullish but that’s in the top 11% of readings since 2000, and is up from a recommended net long of 18% just two weeks ago. Fundamentals can be regarded as either bearish (Q-ratio, P/E10) or bullish (P/E in a none recession environment) and that is why we don’t look at them to take decisions. At the moment we only go long on oversold conditions and sell on overbought conditions until a longer term scenario is set out by the market’s price action.

Good luck and please feel free to post questions or comments in the comment field of this post.

Sentiment Getting Too Bullish

At this time I would recommend everyone to get out of all high risk assets such as stocks as we are reaching a multi-month high.

There are too many factors to mention but I will add two charts from the blog of SentimenTrader below.

What I would preferably see is that we get a new multi-year high which means above last summers high. We are very close to that now, only a few percent below. Then most people will reason that a new bull era has begun. That will be the mistake of the century. But at this time, at least get out of every high-risk asset and, and start taking small negative positions.

The market is now driven by enormous amounts of liquidity provided by central banks all over the world, and that is a strong force, but valuations driven by politicians rather than by value will be very vulnerable when reality takes its course.

sentiment chart rydex fundsrydex sentiment chart bearCharts from SentimenTrader.com/blog. If you are interested in contrarian analysis and market sentiment I highly recommend the subscriber service at SentimenTrader.com.

Gold Weekly Buy Signal

Gold finished last week bullish and gave a buy signal in the weekly chart.

I call this signal “Buy The Dip” and it gives us a good buying point. But no buying signal is ever good without a proper exit strategy. But if you are being long-term bullish on gold like I am, you should widen that stop loss. So please remember to always define your exit signal before you take on a trade or investment.

A wider stop loss means you also need to take a smaller position on your trade. But I hope most readers already have gold in their long-term portfolio as insurance as I have written about before.

The last local low point was $1,535 so that will be my stop loss unless sentiment changes.

[Edit: Added the following paragraph on Nov 1st]

Mark Hulbert who is tracking sentiment in his Financial Digest wrote on the 25th of October that “[…] gold market exposure among the short-term gold market timers […] dropped to its lowest level in two and one-half years — minus 13%.” This will really help to give the positive signal above a kick-start.

gold buy signal chart buy the dip

Gold Sentiment among Portfolio Analysts

In this short article I will follow up on the ways to look at gold sentiment to judge whether it is a good time to buy or sell gold (or sit on your hands). This time we see how portfolio analysts look at gold to see if they are too enthusiastic or too negative.

According to Hulbert at MarketWatch, “that huge two-day drop in late August did scare a lot of erstwhile bulls into becoming almost stubbornly bearish — which, from a contrarian point of view, is bullish. As a result, even though gold bullion is now back within shouting distance of its August highs, gold market sentiment remains remarkable subdued.”

They write that the average recommended gold market exposure among a subset of the shortest-term gold market timers currently stands at 40.3%. While it stood at a much higher 67% in late July.

So even though gold has climbed $300 and 18% since July portfolio managers are more negative (or less positive) now. Since the typical pattern is for gold timers to become more bullish as the market rises, and vice versa, this development is bullish from a contrarian point of view.

gold sentiment bullish chart

 

Gold Sentiment

There are many ways to measure market sentiment for gold. One way to do it is by checking Google Trends to see how many have searched for the term “buy gold”. That way you get a very broad definition of the positive sentiment in gold

From the chart below we see that we just have had a top in sentiment in gold in the beginning of August. Last time before that was in October 2008. The price of gold took a deep three-week dive right after the October top before the strong trend continued.

What seems to be a bit stretched in the picture though, is that the news references just made a huge spike in august. More notable than the spike in October 2008. This spike, however, totally died out for the last days which could make gold bulls relax a bit.

I am not very found of doing quantitative research with so few observations (the peeks), but this is one of many tools about how to look at quantitative-, technical-, or sentiment analysis.

Enjoy!

gold positive sentiment trend

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