Posts filed under “Sentiment”

Complacency Versus Wall of Worry

Are investors being too complacent?

That is the question that an be looked at in several different ways. Some folks rely on anecdotal evidence. Others use the VIX or the Put Call ratio.

The St. Louis Fed uses their own metric which they call the “Financial Stress Index” (STLFSI). It combines 18 different weekly data points. In this morning’s WSJ, Spencer Jakab discusses what this means for equities: A Stress Gauge Suggests Potential Upside for Stocks.  He notes that latest reading (August 30) was “well below the average since December 1993, that reading is less-stressed than four-fifths of all readings over that time.

Given all of the negative headlines on Syria, and the Taper, plus the recent spike in yields, one would have expected markets to be quite skittish.

The key question is how skittish — how volatile, and how extreme are the reactions. Therein lay the tricky aspect of using sentiment: It only really indicates a potential market reversal when it hits an extreme level.

Jakab notes:

“The lowest readings in history came in the early weeks of 2007 when stocks were booming and the first signs of the subprime-mortgage crisis were about to appear. The highest 12 readings all came in late 2008 following the collapse of Lehman Brothers.”

As the chart below shows, we are not currently anywhere near the levels of mass complacency. This suggests that markets are still climbing “the wall of worry” — and could still have further to run. YMMV

 

St. Louis Fed Financial Stress Index (STLFSI)
STLFSI_Max_630_378
Source: St. Louis Fed

 

Source:
A Stress Gauge Suggests Potential Upside for Stocks
Spencer Jakab
WSJ, September 8, 2013
http://online.wsj.com/article/SB10001424127887323893004579059423599890740.html

Category: Investing, Sentiment

S&P 500 Valuation vs VIX Shows Complacency

Click to enlarge Source: Bloomberg   The pushback to yesterday’s chart (Sell Side Indicator: Wall St’s Improving Optimism) was rather fierce. Whether that reflects confirmation bias on the part of under-invested readers is unknown. But to provide equal time and to make sure that I am not engaging in my own confirmation bias, consider the…Read More

Category: Investing, Psychology, Sentiment

Consumer Confidence: A Useful Indicator of . . . the Labor Market?

Consumer Confidence: A Useful Indicator of . . . the Labor Market? Jason Bram, Robert Rich, and Joshua Abel Liberty Street Economics     Consumer confidence is closely monitored by policymakers and commentators because of the presumed insight it can offer into the outlook for consumer spending and thus the economy in general. Yet there’s…Read More

Category: Employment, Sentiment, Think Tank

Sell Side Indicator: Wall St’s Improving Optimism

Click to enlarge Source: Merrill Lynch/BoA   This is an interesting chart: Improving Wall Street sentiment is still no where near the levels associated with excessive sentiment. Despite the ongoing rally — or perhaps because of it — we are now all the back to the levels enjoyed at the lows in March 2009. Merrill notes…Read More

Category: Contrary Indicators, Sentiment, Technical Analysis

Trusted Bank Brands Ladder

Click to enlarge Source:  Aspen Institute

Category: Credit, Sentiment

Five Bubbles?

The stock market has been choppy since mid-June, thanks in part to tapering talk and even more data that proves China is slowing down. MarketWatch’s Laura Mandaro discusses five bubbles investors need to watch

Five Bubbles Investors Need to Watch

Category: Markets, Sentiment, Valuation, Video

Wall Street (Still) Lukewarm on Equities

Click to enlarge     Merrill Lynch continues to point out that the Street remains unenthusiastic about stocks: Sentiment ticks up to highest in 13mos, but still far from bullish The Sell Side Indicator — our measure of Wall Street’s bullishness on stocks — ticked up just slightly in June to 49.8 from 49.6. The…Read More

Category: Sentiment, Technical Analysis

Question: What Is Driving Hindenburg Omen Internals?

Source: Stockcharts     Definition: Hindenburg Omen is triggered when: (1) more than 2.2% of stocks on the NYSE are at 52-week highs AND more than 2.2% are at 52-week lows, (2) the 50-day moving average is trending higher, (3) the McClellan Oscillator is negative, and (4) new 52-week highs don’t exceed new lows by…Read More

Category: Markets, Sentiment, Technical Analysis

What Do You Control?

During this past month, we have seen significant moves up and down. Volatility has risen; there have been some scary drops in Asia, and some follow through selling (more or less) in the US. We have seen small measures of over-reaction, along the lines of “What do I do? What should I do? Should I…Read More

Category: Investing, Sentiment, Trading

Don’t Be This Trader

Via Trader Habits, here’s another graphic to add to our massive collection of Sentiment Cycles (here, here and here):   Don’t Be This Trader  

Category: Sentiment