Time Frame: Medium Term | Update Schedule: Daily | Source: CNN, SentimenTrader
Construction:
This is a model based on the one published by CNN on their public website (we suggest you visit their site to learn more about the model).
This is our calculation of the model based on the inputs discussed on their website. It does not reflect the values published by CNN, rather it is our interpretation of the model.
We use different inputs for the put/call ratio to more accurately reflect trading activity, and a different junk bond input to avoid some issues with using an ETF-based value.
The model measures inputs such as price trend, volatility, options trading, and bond trading to determine prevailing investor sentiment.
It should be interpreted in a similar way as other sentiment indicators and models, with rising optimism being good for stocks until it reaches extreme optimism, in which case it becomes a contrary indicator the more optimistic it gets.
The inverse is also true, with declining optimism being a negative for stocks until it reaches an extreme, in which case it begins being a contrary positive indicator.
