Sunday, January 12, 2020

#Sentiment Review $SPX

The old American idiom of a day late and dollar short is an phrase easily applied to majority's ability to time (buy or sell) US stocks. The majority, influenced more by instinctual behavioral tendency of the individual to seek acceptance of an emotionally-driven crowd than act independently in the minority, views rising and falling stocks prices as bullish and bearish. This tendency that drives them chase when probabilities favor fading relegates the majority as the consistent bagholders of history's panics and trend changes.

Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”, John Templeton

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A trending trading topic on social media has to be sentiment. Extreme greed, optimism, extremely low put to call ratios, or some variant of these themes are all the rage right now. The bears are growling about extreme optimism as a precursor of decline or bear market.

The computer sentiment work, however, does not support the bearish argument. The sentiment oscillator (LTSO) is up. LTSO > 0% defines a bull phase. The bull phase is not old, so time is not working against the impulse. WAS, a measure of sentiment concentration, is rising but not extreme. WASo > 1 defines extreme optimism. WASo > 0.5 suggests growing optimism. WASo = 0.35, which suggest the bears could be talking their book or short-term focused. Timing stocks over the very short-term is nearly impossible. That's why bearish or bullish calls often turn in narratives when they don't work.

Playing reactions against the primary trend's up impulse is never a good idea. History proves that, but social media generally doesn't like facts screwing around with its opinions, so its best to log off and follow the Matrix. Optimism is rising, but it has a long way to go before WASo > 1. The last time WASo > 1 was early 2018. I recall pointing out that sentiment had reached an extreme reading, but nobody cared. Stocks were headed to the moon in 2018.

Weighted Average Sentiment

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