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February 12, 2018

What is Market Sentiment Telling Investors?

According to the CNN Fear/Greed Index, the market has whipsawed from extreme greed to extreme fear within about a week (first two charts below). In isolation, this might be viewed as a contrarian signal to buy risk assets. 

However, according to the AAII sentiment indicator (further below), investor sentiment is still within 'normal' ranges despite shifting to a more bearish position over the past week. 

Finally, Ed Yardini's Bull/Bear ratio (bottom chart) remains quite elevated (although it doesn't include the Feb 8th, 2018 1032 point drop in the Dow), suggesting investors are still bullish.

Conclusion: Although I believe it is virtually impossible to time the market, investors using sentiment as a contrarian signal to buy risk assets may need to wait for broader confirmation across various measures.

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