sentimenTrader Blog


2017-10-17 | Jason Goepfert | Comments

With yet another day of almost no volatility, signs are piling up that things are about to change. The caveat here, of course, is that the signs piled up several times before, and we either got a limp response or none at all. Among these signs, we’re seeing that “smart money” hedgers are net long […]

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2017-10-11 | Jason Goepfert | Comments

With the drop in the Mexican peso over the past month, the iShares Mexico ETF, EWW, has sold off and has triggered an interesting setup.

The fund is showing up on the ETF Sentiment & Trend screen as showing pessimism despite being in an uptrend (above its 200-day average).

The one-day Optimism Index is extremely low, and that’s been the case for days, even weeks. The 3-day average is below 12, a reading that we don’t see very often. Most of the moving averages from a few days to a few weeks are now showing extreme pessimism. That’s happening right as the fund has declined toward its 200-day average and potential support from its prior breakout level. I don’t put a lot of weight on that, for the record.

In the past, when the 3-day average dropped to such a low level when EWW was in an uptrend, it rallied over the medium-term, though there was some short-term volatility. According to the Backtest Engine, the average return over the next 50 days was nearly 8%.

Another (very) minor positive is seasonality. EWW has had a tendency to bottom around this time of year and march higher into year-end.

Now here’s the bad part. Because of currency issues, EWW has a high correlation to the direction of the peso. If the peso continues to decline, EWW almost certainly will, too. And “smart money” hedgers are extremely short the peso, unlike early this year when they were long. EWW’s best rallies have occurred when hedgers were net long or not holding a large short position. That is definitely not the case now. This is a HUGE headwind and suggests EWW could/should continue to decline.

In terms of a potential trade, I like the factors that have lined up on the upside. But because of the hedger position, which I do not like at all, I don’t want to tie up much capital or risk a lot of the peso continues to slide and EWW just slices right through its 200-day. That’s a higher-than-comfortable probability since the hedger positions have been such a consistent indicator over the years. But the “pessimism-in-an-uptrend setup has been consistent enough to take a shot, so I’m going to buy January call options on EWW at the $53 strike, a small cash outlay with limited risk should the setup fail. That gives it enough time to work. If it happens to work right away, I’d like take profits quickly due to worries about those hedger positions.


2017-10-10 | Jason Goepfert | Comments

With the newest version of the Backtest Engine that Eric created, now we can see how almost any indicator we cover has impacted market performance going forward, including when that market was in a bull or bear market.

This updated Engine allows users to change the markets tested and whether they’re above or below various moving averages.

The video below walks through a couple of tests using the spread between Smart and Dumb Money Confidence. We think it’s a great tool and hope it’s useful to you!


2017-10-04 | Jason Goepfert | Comments

For those who don’t follow the premium Twitter account, which you have access to if you’re receiving this message, following are some of the studies and indicators that have been posted over the last couple of days. On Wednesday, SPY notched 7 higher closes and a new high, which has led to short-term weakness. Same […]

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2017-09-26 | Jason Goepfert | Comments

Oil and related stocks have had quite a run over the past few weeks. The oil and gas explorer ETF (XOP) has been up 12 days in a row for the first time ever. Even more established funds like XLE are on a near-record run after the sector got washed out on August 18 with […]

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2017-09-21 | Eric Brown | Comments

Currently, there are 9 Stock indicators at Pessimistic Extremes and 38 Stock indicators at Optimistic Extremes.

The tables below display stock market indicators that are at Very Optimistic, Extremely Optimistic, Very Pessimistic or Extremely Pessimistic levels. Note: These tables contain only indicators from the Stocks section of the site. For the tables below, you can click through to each chart by clicking on the Chart name.

Pessimistic Extremes

Chart Last Close Last Update Sentiment
ISE Call/Put Ratio
57.0
2017-09-20
Speculators Combo
0.0
2017-09-12
Russell 2000 Mini Hedgers Position
102075.0
2017-09-12
Number of IPOs
10.0
2017-08-31
Rydex Energy Assets
25.4
2017-09-20
Rydex Energy Services Assets
15.1
2017-09-20
Small Spec Index Position
-8.94
2017-09-12
DIA Open Interest Ratio
0.9489
2017-09-20

Optimistic Extremes

Chart Last Close Last Update Sentiment
STEM.MR Model
70.0
2017-09-20
% Showing Excess Pessimism
3.0
2017-09-20
VIX
9.78
2017-09-20
VIX Term Structure
0.77
2017-09-20
SKEW Index
142.6
2017-09-19
Small Trader Call Buying
34.0
2017-09-15
OEX Open Interest Ratio
1.87
2017-09-20
NYSE High/Low Ratio
91.0
2017-09-20
NASDAQ High/Low Ratio
89.0
2017-09-20
AAII Bull Ratio
65.0
2017-09-13
AAII Allocation – Cash
16.0
2017-08-25
Equities as % of GDP
0.86
2017-03-31
Small Business Optimism
105.2
2017-07-31
DJIA Hedgers Position
-40868.0
2017-09-12
DJIA Mini Hedgers Position
-81737.0
2017-09-12
DJIA Combo Hedgers Position
-18079200000.0
2017-09-12
Odd Lot Purchase Percentage
66.3263
2017-09-19
Mutual Fund Cash Level
3.2
2017-07-31
Equity / Money Market Asset Ratio
4.84
2017-07-31
Retail Money Market Ratio
2.48
2017-07-17
NYSE Available Cash
-255911.0
2017-07-31
Rydex Ratio
57.0
2017-09-20
Rydex Money Market %
15.0
2017-09-20
Rydex Total Bull Assets
1649.4
2017-09-20
Rydex Total Bull / Bear Ratio
9.7
2017-09-20
Rydex Biotechnology Assets
403.0
2017-09-20
Rydex Consumer Products Assets
256.8
2017-09-20
Rydex Financial Services Assets
51.6
2017-09-20
Rydex Technology Assets
94.8
2017-09-20
Conference Board – Stocks
25.3
2017-08-31
University of Michigan – Stocks
62.9
2017-08-31
Volatility ETF Fund Flow
0.085
2017-09-18
% Showing Excess Optimism-Pessimism Spread
0.31
2017-09-20
QQQ Open Interest Ratio
2.5736
2017-09-20
IWM Open Interest Ratio
3.134
2017-09-20
CNN Fear Greed Proxy
80.0
2017-09-20
Short-Term Risk Levels
7.0
2017-09-20
Consumer Confidence – Stocks Up
45.3
2017-08-31
Consumer Confidence – Stocks Down
20.0
2017-08-31

2017-09-16 | Jason Goepfert | Comments

We’ve had some requests to post updates on a few popular models from the site, so below are current snapshots of the spread between our Smart Money and Dumb Money Confidence, the Medium-Term Optimism Index, and a proxy of the CNN Fear & Greed model.

All three reached modest levels of pessimism in mid-to-late August for the first time in a year. That proved to be enough for the dip-buyers as we’ve quickly rebounding right back to new highs. Because of the speed of the move, the models are showing that sentiment hasn’t had time to catch up to the price move, except for the CNN model which is just now entering “excess optimism” territory.

From our Backtest Engine, we can see that over the past few years, when the CNN model was in “excess optimism” territory, the S&P 500 averaged a return of 0.23% over the next month, below average for that time span. And it’s well below the 0.95% average return when the model was not in extreme territory (below 70).


2017-09-11 | Jason Goepfert | Comments

Over the past few months, financials have gotten hit hard. During the past week, fewer than 20% of members in the sector were trading above their 50-day moving averages, a deeply oversold reading, especially during the past 8 years of this bull market.

That weakness has pushed Financials to be the weakest among major sectors.

We can see that over the past year, such a reading was seen only one other time, right before the spring rally.

Using the Backtesting Engine, it’s apparent that when the sector first emerged from a deeply oversold breadth reading (fewer than 25% of members above their 50-day moving averages), buying interest tended to persist. Two weeks later, Financials added to their gains 80% of the time.

During a bear market, the stocks often see almost immediate selling pressure after emerging out of oversold territory, so that kind of behavior is always something to watch for.


2017-08-28 | Eric Brown | Comments

Over the weekend we pushed out a new version of our backtesting engine (see more info about the engine here and here) that includes a chart for the index and indicator that you are backtesting as well as results delivered to the same page (so you won’t need to go back and forth between the backtest screen and results screen).

Now, when you go to the backtesting engine, you’ll see the following screen:

sentimenTrader backtesting engine with chart

Once you select an index  and an indicator, the chart will be drawn and will look similar to other charts on the site.

Once you’ve selected the index/indicator, the rest of the backtesting engine is the same. You can select a moving average (which will also draw on the chart) lookback period, observation period, indicator condition, indicator level and the option to exclude overlapping observations.

When ready to run the backtest, click the ‘Run Backtest’ button and the results will be rendered directly below the chart and backtest criteria section.  Additionally, if you want to run another backtest, just scroll back to the top of the page and change the parameters and click ‘Run backtest.’

sentimenTrader backtesting engine with completed chart

sentimenTrader backtesting engine with results


2017-08-25 | Jason Goepfert | Comments

With the introduction of our backtesting engine, it’s now possible to determine how a market (or almost any market) has responded to various conditions from our indicators.

Let’s go over a use case with the small-cap Russell 2000 ETF, IWM.

From the Dashboard, if we click on the Optix Heatmap and then reorganize it by the 20-day average of the Optimism Index, we can see that IWM is among the most hated of all markets over the past month.

If you click that IWM tile, it will bring up the chart of the Optimism Index for IWM. From the drop-down box below the chart, choose the 20-day average and it will show up on the chart. To isolate it, in the legend click IWM Optix, which will make everything disappear. Again in the legend, click 20-Period Moving Average and only the moving average will now appear in the chart. We can see that it’s just curling up from a low level of around 26.

Zoom out on the chart by using the window below the chart, or select 5Y from the boxes to have the chart re-scale and show the past 5 years of history. We can see that the current 20-day average is among the lowest we’ve seen during that time frame. To see how IWM has performed after similar extremes, click the Backtest This Indicator button.

The fund and indicator will already be chosen for you. Then select the 20-period moving average, for the past 8 years (regular subscribers will see history up to the past 5 years, premium tier members can test the whole history), let’s look at the next 40 days (not important), and how the market has done after the indicator “crossed above” the level of 27. Then click Run Backtest.

When the results pop up, click the Multi-Timeframe Results tab.

From there, we can see that during this bull market, when IWM has been as hated as it was recently over the past month and sentiment has begun to recover, a week later IWM actually sold off every time but once, and a few of them were stiff. But by two months later, it was higher every time, suggesting that buying into a short-term pullback has been a winning bet after sentiment started to recover from a pessimistic level.

This won’t work as well (or at all) during a bear market, but if you go back further you can see how it performed in 2007-2008 as well, to better determine what kind of risk was normal.


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