MARKET ANALYTICS TEAM, MARCH 24, 2017
Invest Up Sentiment Indicator for US Stocks - GREED
The Invest Up Sentiment Indicator for US Stocks rose 1.17 points in this month to 78.05, following an increase of 0.47 points in February, and an increase of 1.05 points in January.
Rated GREED, the current reading of 78.05 indicates excessive optimism and complacency arising from overconfidence in the US stock market.
The indicator is designed for investors to detect irrational greed and fear in the US stock market. Our econometrics research shows that one of the best ways to forecast whether US stocks will go up or down is to assess whether investors are excessively bullish or bearish. Extreme bullishness and extreme bearishness is often followed by a strong price movement in the exact opposite direction.
The indicator is expressed in a range between 0 and 100. A figure below 30 is rated FEAR and associated with excesses in bearish sentiment resulting from investors' fear of uncertainty. On the other hand, a value higher than 70 is rated GREED and associated with excessive bullishness and greed in the US stock market. Historically, the GREED and FEAR ratings have had strong correlations with turning points in the US stock market. A rating of GREED, indicating excesses in bullish sentiment on the part of most US stock investors, often leads to a topping in the market and a downside correction. Similarly, a rating of FEAR, indicating high pessimism on the part of most investors, often leads to a bottoming in the US stock market and an upside reversal.
Using the indicator as a guide, investors will be able to dynamically adjust exposures in US stocks, tactically avoid long positions when the market appears overbought, and enter the market when the indicator signals an attractive buying opportunity.