Hello monkeys, stumbled upon this very interesting article: Gauging Market Sentiment: Selling Greed Is Harder Than Buying Fear
Just a year ago, precisely at this moment, stocks were down double-digits and there were fears of recession looming in the markets.
Many sentiment measures registered levels unseen since the financial crisis. For example, the Sentiment Survey of the American Association of Indvidual (sic) Investors (AAII) indicated that there were fewer bulls in February 2016 than in March 2009. Bank of America Merrill Lynch’s December 2016 Global Fund Manager Survey showed 15-year highs in cash balances and seven-year lows in equity allocations.
A year after economists were proven wrong (there was no recession), these sentiment measures bounced even higher. Stocks were projected to fall, the American economy was predicted to fail. But no, instead, the Dow reaches 20,000 and this happened:
A recent Investors Intelligence Sentiment Report registered 65% bulls — not an extreme reading, but above the roughly 45% average. CNN’s Fear and Greed Index scored in the high 60s — again not extreme, but above the mean.
So my question is: How can we interpret this data? When is the right time to sell? As mentioned in the article, "Sentiment ... relies on the supply/demand assumption that if everyone is bullish, no one is left to buy, and vice versa".
Which brings us to the next important question: When is the next crisis?
