The typical Nasdaq-focused inventory market timer has change into extra bullish than on exactly 93.6% of all different days since 2000.
That a lot exuberance is just not an excellent signal from a contrarian perspective. In late April, when these identical buyers grew to become equally exuberant, the Nasdaq Composite Index
proceeded to fall 7.8% in two weeks’ time.
Paradoxically, by changing into so bullish, the market timers are offering a believable rationale for why the inventory market could battle this September. Whereas the month is the worst of the calendar for the market, on common, the absence of any such rationale made it dangerous to wager on this seasonal sample repeating — as I argued recently. It seems that the market timers are filling on this void!
To make sure, contrarian evaluation doesn’t all the time work out as nicely or as shortly because it did this previous April and Might. However it does most of the time.
Contemplate the outcomes of my evaluation of the Hulbert Nasdaq Publication Sentiment Index (HNNSI), which displays the typical beneficial fairness market publicity stage amongst a subset of a number of dozen short-term Nasdaq-focused market timers. This common is plotted within the accompanying chart.
The shaded areas on the prime and backside of the chart point out the ranges akin to the ten% of historic HNNSI readings which can be the very best and the ten% which can be the bottom. In previous columns I’ve used these ranges to point extreme bullishness and bearishness. This common at present stands at 79.3%, which is nicely into the zone of extreme bullishness.
The desk under experiences the typical returns of a number of completely different inventory market benchmarks within the wake of all situations since 2000 during which the HNNSI was within the highest or lowest decile.
|When HNNSI is larger than 90% of readings since 2000||When HNNSI is decrease than 90% of readings since 2000|
|Russell 2000 over subsequent month||-0.5%||2.3%|
|Russell 2000 over subsequent 3 months||1.9%||6.5%|
|Nasdaq over subsequent month||0.2%||2.8%|
|Nasdaq over subsequent 3 months||3.3%||6.1%|
|S&P 500 over subsequent month||0.0%||2.0%|
|S&P 500 over subsequent 3 months||2.5%||3.7%|
Discover that the inventory market would have a lot stronger sentiment winds blowing in its sails if the HNNSI weren’t at present so excessive.
Notice additionally that contrarian evaluation is a really short-term timing instrument. My analysis has proven that sentiment’s best explanatory energy is on the one- to three-month horizon. So even when this bearish contrarian forecast seems to be on track, it tells us nothing about the place the inventory market could be in 2022 and past.
What about market timers within the inventory and bond arenas?
The Nasdaq inventory market is only one of 4 arenas during which I monitor market timers’ common publicity ranges. The others are the final inventory market, the gold and the bond market. Every month on this house I spotlight certainly one of them and analyze what it’s saying from a contrarian perspective.
Within the meantime, the chart above summarizes the place the timers at present stand in all 4 arenas.
Mark Hulbert is an everyday contributor to MarketWatch. His Hulbert Rankings tracks funding newsletters that pay a flat payment to be audited. He may be reached at firstname.lastname@example.org.
https://www.marketwatch.com/story/nasdaq-focused-investors-are-more-bullish-today-than-on-94-of-all-other-days-since-2000-11630679028?rss=1&siteid=rss | Opinion: Nasdaq-focused buyers are extra bullish in the present day than on 94% of all different days since 2000