Stock Sentiment Indicator
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Smart Money / Dumb Money Confidence
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Monday, December 15, 2014
1 Traders have been selling high-yield junk bond funds heavily, including the most popular exchange-traded funds. That has pushed the market price on these funds to more than 1% below the value of their underlying securities, a rarity for ETFs. See page 2.
2 Since the inception of S&P 500 futures, they have lost more than -1% during the
week of December option expiration only 1 time out of 32 years. The average return is +1.1%, with an average drawdown (i.e. maximum loss) of -0.7% versus an average maximum gain of +2.1%, a 3-to-1 reward-to-risk ratio. If Monday of expiration week closed lower (like it did on Monday), then the rest of the week was positive 8 out of 9 times, averaging +1.9%.
60%
67%
500
700
900
1100
1300
1500
1700
1900
20%
30%
40%
50%
60%
70%
80%
12/17/13 3/17/14 6/17/14 9/17/14
Smart Money Dumb Money S&P 500
The data and analysis contained herein are provided “as is” and without warranty of any kind. Sundial Capital Research, Inc., its employees, or any third-party data provider, shall not have any liability for any loss sustained by anyone who has relied on the information contained in any publication published by Sundial Capital Research, Inc. No report shall be considered a solicitation to buy or sell any stock or security. This communication reflects our opinions as of the date of this communication and will not necessarily be updated as views or information change. Sundial Capital Research, Inc. and its respective employees may have lpositions in the securities discussed herein and may purchase or sell such securities without notice. The information contained herein is believed to be accurate to the best of our knowledge, and we make no guarantees that there will not be errors from ourselves or third-party data providers. We make every effort to validate data integrity, but occassionally errors do occur and we subsequently make an effort to disclose that to subscribers. Further distribution prohibited without prior permission.
Copyright 2014 (c) Sundial Capital Research, Inc. All rights reserved.
What We're Watching
Stocks Short-TermShort-term risk has declined again as signs of pessimism increase and stocks head into a consistently positive time of year
Stocks Intermediate-TermRisk has declined back to neutral after rising to above-average levels on December 4, with the huge increase in uncertainty being the main factor
BondsThe Optimism Index for bonds has pushed into extreme territory for the first time since mid-2012, suggesting a rise in yields is becoming more likely
GoldOptimism is in extreme pessimism territory, but has a bit to go before matching extremes from the past year
See the Active Studies page for other markets
Published by Sundial Capital Research
Daily Sentiment Report
Sundial Capital Research, Inc.12527 Central Avenue NE
Suite 165Blaine, MN 55449
Jason GoepfertPresident
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@ Copyright 2014 Sundial Capital Research, Inc.
No content contained in this report is intended as
a solicitation to buy or sell securities in any form.
Studies And Updates
31-May-2013
19-Aug-2013
12-Dec-2014
Median
All Days
# Up
# Down
Relevance
Relevance above 95% suggests statistical significance; the higher the %, the more robust the result
@ Sundial Capital Research, Inc. sentimenTrader.com
Nearing Panic In High Yield Bonds
Late last week, we took a look at the "triple time frame" rate of change in high-yield (junk) bonds, which was showing one of the most severe bouts of selling pressure in 30 years.
When we see sharp dislocations like this, it makes the job of arbitrageurs more difficult. Some love it because it creates opportunities for large gains; others loathe it because it makes their daily cash flow unpredictable.
One of the favorite targets of arbitrageurs is closed-end funds. Driven by retail investors, the market price of closed-end funds often drifts from the value of the underlying assets held by the fund. An arbitrageur can buy the fund at its market price, then hold it and wait for the market to catch up.
There is still risk involved because the underlying assets could deteriorate, but buying the assets at a discount provides the investor with a tailwind and a greater chance of a positive return than if they had bought the assets at fair market value.
With exchange-traded funds, arbitrageurs don't have as much opportunity because of how the funds are priced and
traded. We rarely see popular ETFs trade with a large premium or discount to the fund's Net Asset Value.
That's what makes the current situation unusual for the three most popular ETFs that track the high-yield bond market.
HYG, JNK and PHB are the three go-to funds for investors who want quick and convenient access to high-yield bonds. The vast majority of the time, the three funds all have a market price that's within 1% of the underlying value of the funds' holdings.
Not now.
Investors have started to panic, and the funds' prices are now more than a percentage point below their NAV. We only have 7 years' worth of history, but every other time the discount dove to -1% is shown in the table on the next page.
It didn't say much about the shorter-term prospects of the funds, but longer-term it was a good sign of irrational selling pressure. From 3 months forward, the only negative instance occurred during the financial crisis of 2008.
iShares iBoxx $ High Yield Corporate Bond ETF (HYG)
Source: CBOE, Bloomberg Finance LP @ Sundial Capital Research, Inc. sentimenTrader.com
Premium / Discount To NAV For HYG, JNK And PHB
Discount > -1%
+1% Premium
-1% Discount
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@ Copyright 2014 Sundial Capital Research, Inc.
No content contained in this report is intended as
a solicitation to buy or sell securities in any form.
Studies And Updates - continued
Signals 1 Day 1 Week 2 Weeks 1 Month 3 Months 6 Months 1 Year
(2007-2014) Later Later Later Later Later Later Later
15-Sep-2008 -2.3% 0.2% -10.6% -12.4% -24.3% -20.1% 6.9%
23-Feb-2009 1.4% -4.6% -9.7% 1.5% 15.1% 26.5% 38.6%
7-Jul-2009 0.6% 1.9% 6.5% 11.4% 14.7% 23.4% 25.4%
4-Feb-2010 -0.6% -1.8% 1.5% 3.6% 1.1% 8.1% 16.4%
5-May-2010 -2.5% 0.4% -1.7% -2.8% 4.3% 8.8% 15.3%
16-Jun-2011 1.1% 2.3% 3.9% 4.0% 0.8% 2.5% 9.3%
4-Aug-2011 -0.1% -1.3% -1.0% 0.7% 3.1% 8.2% 13.3%
23-Nov-2011 0.0% 5.1% 5.7% 8.8% 13.0% 10.4% 19.8%
17-May-2012 0.0% 0.9% -0.7% 2.6% 6.3% 7.4% 16.7%
31-May-2013 -0.1% -0.1% 0.4% -1.2% -0.1% 3.5% 8.2%
19-Aug-2013 0.9% 1.5% 1.0% 3.7% 5.2% 7.5% 11.1%
12-Dec-2014
Median 0.0% 0.4% 0.4% 2.6% 4.3% 8.1% 15.3%
All Days 0.0% 0.1% 0.3% 0.6% 2.0% 4.1% 10.0%
# Up 4 7 6 8 9 10 11
# Down 6 4 5 3 2 1 0
Relevance 11% 30% 5% 71% 53% 73% 95%
Relevance above 95% suggests statistical significance; the higher the %, the more robust the result
@ Sundial Capital Research, Inc. sentimenTrader.com
HYG Performance After Multi-Fund Discount > -1%
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@ Copyright 2014 Sundial Capital Research, Inc.
No content contained in this report is intended as
a solicitation to buy or sell securities in any form.
Date Description Priority Bias S&P 500 should be…
18-Nov-2014 S&P breaks out of tight range to new high Low Bullish > 2040 from Feb - Dec 2015
17-Nov-2014 Extremely negative SPY Liquidity Premium Low Bearish < 2041 into Dec 2014
14-Nov-2014 Highest 5-day range to lowest w/in 30 days Medium Bullish > 2040 from Dec 2015 - Mar 2015
31-Oct-2014 S&P component new highs spike higher Medium Bullish > 2018 through Dec 2015
30-Oct-2014 S8P thrusts above its 5-day average Medium Bullish > 1994 from Nov 2014 - Oct 2015
2-Oct-2014 InsiderScore buy inflection Medium Bullish > 1946 from Nov 2014 - Oct 2015
8-Jul-2014 Consecutive 5% jumps in VXO Low Bullish > 1963 through Jul 2015
9-May-2014 Tight range near a 52-week high Medium Bullish > 1878 through May 2015
16-Apr-2014 Issuances of money-losing IPOs continues High Bearish < 1862 through Apr 2015
19-Feb-2014 10-day breadth thrust High Bullish > 1828 through Feb 2015
Date Description Priority Bias Market implication
8-Dec-2014 Bond optimism becomes extreme Medium Bearish 10-year yield > 2.25 through early 2015
5-Dec-2014 Mexican stocks (EWW), peso extreme pessimism Medium Bullish EWW > 61.50 through spring 2015
13-Nov-2014 Metals & Mining public bearish & insiders bullish High Bullish XME > 34.63 through early 2015
3-Nov-2014 Materials fund (XLB) shows extreme pessimism Medium Bullish XLB > 48.06 through early 2015
Active Studies
Stocks
Other Markets
The Active Studies highlight studies we've discussed in prior reports that are still "active". This means that the market isstill within the time frame that was indicated as being effective, meaning it showed returns or consistency that was significantly different than random during the study period. For some studies, there was not a concrete time frame given, but rather general market conditions. The study would remain "active" as long as those market conditions were in effect.
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@ Copyright 2014 Sundial Capital Research, Inc.
No content contained in this report is intended as
a solicitation to buy or sell securities in any form.
Stocks Short-Term Sentiment Summary
3
S&P 500 - Past 90 Days
Short-term Optimism Index (Optix)
S&P 500 Down Pressure (3-day average)
% Of S&P 500 Stocks > 10-Day Avg
Equity Put/Call Ratio
Inverse ETF Volume As % Of Total
Bottom Line: Odd readings continue in this market. The VIX "fear gauge" declined more than -3% despite more than a -0.5% loss in the S&P 500, the first time this has happened on any day other than a Friday (traders often reprice options on Friday to account for time decay during weekends). When it has happened (again, only on Fridays), the S&P 500 rose over the next three days 21 out of 28 times. One of the most seasonally positive times of the year begins now, though that is always only a tertiary consideration. More importantly, there are numerous signs of excessive pessimism on a shorter-term time frame, with the Optix at 25 and confirmed by a variety of other measures, so risk has declined again.
Low risk(0)
High risk(10)
Risk Level
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@ Copyright 2014 Sundial Capital Research, Inc.
No content contained in this report is intended as
a solicitation to buy or sell securities in any form.
Stocks Intermediate-Term Sentiment Summary
5
S&P 500 - Past Year
Intermediate-term Optimism Index (Optix)
Stock / Bond Ratio
% Of S&P 500 Stocks > 50-Day Avg
De-Trended Equity Put/Call Ratio
SPY Liquidity Premium
Bottom Line (Updated 12/12/14): The last update from December 4 raised the risk level to slightly above-average due to a number of overly-optimistic readings. Now that stocks have sold off, and more importantly we've seen a spike in uncertainty, that risk has decreased back to normal levels. The way things are going, it may not take much more to trigger below-average risk on a 1-3 month time frame. As always we will monitor that on a day-by-day basis.
Low risk(0)
High risk(10)
Risk Level
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@ Copyright 2014 Sundial Capital Research, Inc.
No content contained in this report is intended as
a solicitation to buy or sell securities in any form.
Typical Sentiment Cycle
MaximumOptimism
(early Jan 2014)
Last Gasp 1
Re-Test
Lower Low(3%-8% decline)
MaximumPessimism
Re-Test 2
Explosive Rally 3
Belief-Building Phase
Belief-Building Phase
WE ARE HEREHighest Probability
The Typical Sentiment Cycle is a real bull-to-bear phase from the S&P 500 in 1966. It displayed the classic price phases that many cycles exhibit. The WE ARE HERE box is a partially subjective judgment based on sentiment conditions, price behavior and fundamental ratios. It should proceed forward the majority of the time, but may skip backward as new information becomes known. These are rough approximations only.
The case against using something like this is that every cycle is different. No two markets ever look exactly the same, or exactly like this. Sometimes, like the mid-1990s, the middle phase just keeps going and going and going. More typically, stocks spend 1-3 months in each phase, though there is wide variation in that, from weeks to years.
Note that "maximum optimism" and "maximum pessimism" normally occur before a market peak and market trough, respectively. It's rare for bull phases to end when optimism is at its highest point. The same goes for bear phases, but that is less consistent - sometimes a bear will end in panic and both price and sentiment will bottom at the same time.
BULL PHASE BEAR PHASE BULL PHASE
1 What to watch for: Divergences with breadth figures; "This time is different" articles; arrogance from bullish commentators; proliferation of new types of funds; closing of long-time funds that are not fully invested.
2 What to watch for: Divergences with breadth figures, doomsday prophesies on mainstream media, stocking up of staples among consumers, heavy trading activity, ridicule of "knife catching" buyers.
3 Watch to watch for: Explosive price gains over 2-3 day periods; massive thrusts in market breadth; "Just another bear market rally" articles; minimal pullbacks after short-term overbought readings
CORRECTION
Fear-Building Phase(More than 8% decline)
CORRECTION
WE ARE HERELower Probability
WE ARE HERELowest Probability
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@ Copyright 2014 Sundial Capital Research, Inc.
No content contained in this report is intended as
a solicitation to buy or sell securities in any form.
Stock Sentiment Breakdown
Indicator Groups
Optix Optix
Volatility Volatility
Options Options
Pressure Breadth
Oscillator Surveys
TICK C.O.T.
Shorts
Cash
Insiders
Rydex
December 15, 2014
Intermediate-Term Short-Term
19%
25%
0%
10%
20%
30%
40%
50%
06/19/14 07/19/14 08/19/14 09/19/14 10/19/14 11/19/14
% Of Indicators At An Extreme
--- S&P 500 --- % Showing Excess Optimism--- % Showing Excess Pessimism
@ Copyright sentimenTrader.com
48
40
50
45
85
50
55
80
45
95
25
40
45
35
40
40
ExcessOptimism
ExcessPessimism
ExcessOptimism
ExcessPessimism
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@ Copyright 2014 Sundial Capital Research, Inc.
No content contained in this report is intended as
a solicitation to buy or sell securities in any form.
Stock Sentiment Breakdown
Breakdown Of Indicators At Extremes
Indicators Showing Indicators Showing
Excess Pessimism Chart » Excess Optimism Chart »
Equity PutCall AAII Bull Ratio
IPOs Consensus Bulls
ISE Sentiment Index Dumb Money Confidence
Mutual Fund Flow (No ETFs) Equity / Money Market Ratio
New High / New Low - NYSE Mutual Fund Cash %
Odd Lot Shorts NAAIM Managers
OEX PutCall Net Available Cash - NYSE
Risk Appetite Index OEX PutCall Open Interest
Rydex Beta Chase Index Retail Money Market
Rydex Bull/Bear Spread Rydex Bearish Flow
Secondary Offerings Rydex Money Market %
Short-Term Optix Rydex Ratio
TICK - NYSE SKEW IndexUp Issues - NYSEUp Volume - NYSEVIXVIX Term Structure
December 15, 2014
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@ Copyright 2014 Sundial Capital Research, Inc.
No content contained in this report is intended as
a solicitation to buy or sell securities in any form.
Sector Optimism Indexes
20
25
30
35
40
45
50
55
0
10
20
30
40
50
60
70
80
90
100
Nov-13 Feb-14 May-14 Aug-14 Nov-14
Basic Materials
XLB Optix XLB
48
0
50
100
150
200
250
300
350
0
10
20
30
40
50
60
70
80
90
100
Nov-13 Feb-14 May-14 Aug-14 Nov-14
Biotechnology
IBB Optix IBB
70
15
25
35
45
55
65
75
0
10
20
30
40
50
60
70
80
90
100
Nov-13 Feb-14 May-14 Aug-14 Nov-14
Consumer Discretionary
XLY Optix XLY
72
20
25
30
35
40
45
50
55
0
10
20
30
40
50
60
70
80
90
100
Nov-13 Feb-14 May-14 Aug-14 Nov-14
Consumer Staples
XLP Optix XLP
54
25
35
45
55
65
75
85
95
105
0
10
20
30
40
50
60
70
80
90
100
Nov-13 Feb-14 May-14 Aug-14 Nov-14
Energy
XLE Optix XLE
47
0
5
10
15
20
25
30
0
10
20
30
40
50
60
70
80
90
100
Nov-13 Feb-14 May-14 Aug-14 Nov-14
Financials
XLF Optix XLF
66
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@ Copyright 2014 Sundial Capital Research, Inc.
No content contained in this report is intended as
a solicitation to buy or sell securities in any form.
Sector Optimism Indexes
15
25
35
45
55
65
75
0
10
20
30
40
50
60
70
80
90
100
Nov-13 Feb-14 May-14 Aug-14 Nov-14
Health Care
XLV Optix XLV
62
20
22
24
26
28
30
32
34
36
0
10
20
30
40
50
60
70
80
90
100
Nov-13 Feb-14 May-14 Aug-14 Nov-14
Housing
XHB Optix XHB
64
20
25
30
35
40
45
0
10
20
30
40
50
60
70
80
90
100
Nov-13 Feb-14 May-14 Aug-14 Nov-14
Technology
XLK Optix XLK
71
22
27
32
37
42
47
52
0
10
20
30
40
50
60
70
80
90
100
Nov-13 Feb-14 May-14 Aug-14 Nov-14
Utilities
XLU Optix XLU
44 The Sector Optimism Indexes are based on sentiment in the respective ETFs. This includes option market activity, volatility expectations, premium/discount to NAV, fund flows and price activity. The Indexes can go from 0 (most pessimistic) to 100 (most optimistic).
For most of them, sentiment above 70 can be considered extreme optimism, after which the sector tends to struggle. Sentiment below 30 tends to indicate exreme pessimism, after which the sector usually rallies. The box will turn red if the score is above 70, and green if below 30.
Click here for a sortable table of the most active ETFs, including these, and links to interactive charts.
0
10
20
30
40
50
60
70
0
10
20
30
40
50
60
70
80
90
100
Nov-13 Feb-14 May-14 Aug-14 Nov-14
Industrials
XLI Optix XLI
42
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@ Copyright 2014 Sundial Capital Research, Inc.
No content contained in this report is intended as
a solicitation to buy or sell securities in any form.
Optimism Index Ranks
Interactive List »
Interactive List »
Interactive List »
13
21
30
35
35
38
38
38
41
41
43
50
51
52
55
Russia
Mexico
UK
Canada
Japan
Australia
Brazil
India
Spain
Emerging Markets
Italy
Germany
China
United States
France
Countries Ranked ByLowest - Highest Optimism Index
23
33
41
42
42
44
47
48
53
54
54
55
55
61
62
64
66
68
70
71
72
Junior Gold Miners
Gold Miners
Oil Services
Industrials
Metals & Mining
Utilities
Energy
Basic Materials
Retail
Oil & Gas
Consumer Products
Semiconductors
REITs
Real Estate
Health Care
Homebuilders
Financials
Volatility
Biotechnology
Technology
Consumer Discretionary
Sectors Ranked ByLowest - Highest Optimism Index
25
27
28
32
36
38
39
41
43
44
54
55
55
56
56
58
58
58
58
61
Holding Companies-Divers
Storage/Warehousing
Trucking&Leasing
Machinery-Constr&Mining
Home Builders
Coal
Iron/Steel
Metal Fabricate/Hardware
Entertainment
Machinery-Diversified
REITS
Lodging
Cosmetics/Personal Care
Office Furnishings
Semiconductors
Real Estate
Airlines
Advertising
Biotechnology
Textiles
Industries Ranked ByLowest - Highest Optimism Index
7
10
10
10
12
12
13
13
14
14
81
81
82
82
83
84
84
85
86
94
Valmont Inds
Cullen/Frost
Sturm Ruger & Co
Windstream Holdi
Dun & Bradstreet
Transocean Ltd
Now Inc
Rayonier Adv
Joy Global Inc
Liquidity Servic
Prudentl Finl
Prologis Inc
Mohawk Inds
On Assignment
Boston Propertie
United Tech Corp
Delta Air Li
Facebook Inc-A
Viad Corp
Pericom Semicond
Stocks Ranked ByLowest - Highest Optimism Index
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No content contained in this report is intended as
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Currency, Commodity And Bond Sentiment
Currency Futures Grain Futures
British Pound Corn
Canadian Dollar Soybeans
Euro Wheat
Swiss Franc
U.S. Dollar Soft Futures
Japanese Yen Cocoa
Coffee
Cotton
Energy Futures Lumber
Crude Oil Orange Juice
Heating Oil Sugar
Natural Gas
Unleaded Gas
Meat Futures
Cattle
Metal Futures Hogs
Copper
Gold
Silver Bond Futures
Platinum Eurodollar
2 Year
5 Year
10 Year
30 Year
Bond ETFs
TLT
BND
HYG
JNK
LQD
Interactive List »
26
25
21
23
80
17
24
11
31
21
25
29
42
30
38
27
55
47
43
20
44
50
24
60
34
25
25
50
38
50
72
56
37
29
45
ExcessOptimism
ExcessPessimism
ExcessOptimism
ExcessPessimism
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Short-Term Risk Level Intermediate-Term Risk Level
Risk Avg % Avg Max Avg Max Risk Avg % Avg Max Avg Max
Level Return Positive Loss Gain Level Return Positive Loss Gain
0 - - - - 0 1.6% 64% -6.0% 8.6%
1 7.3% 100% -0.2% 8.3% 1 3.8% 62% -3.5% 6.6%
2 2.3% 73% -1.4% 2.5% 2 5.3% 77% -3.5% 7.4%
3 0.1% 52% -1.4% 1.5% 3 5.4% 70% -5.3% 8.2%
4 1.0% 70% -1.0% 2.0% 4 2.7% 63% -3.6% 4.8%
5 0.3% 56% -1.1% 1.1% 5 2.6% 65% -4.7% 5.8%
6 0.4% 59% -0.8% 1.1% 6 1.5% 56% -5.6% 4.8%
7 0.4% 66% -0.7% 1.1% 7 1.1% 58% -5.2% 5.0%
8 0.3% 57% -1.4% 1.7% 8 0.8% 54% -3.8% 4.0%
9 - - - - 9 -6.9% 25% -11.9% 3.5%
10 - - - - 10 -4.0% 39% -12.3% 2.8%
Disclosures
S&P 500 Returns Past 3 Years
The Risk Level travels on a scale of 0 (extremely
low risk) to 10 (extremely high risk). Based on our
study of indicators and technical movements, it
represents the risk to traders of a correction over
the next week.
S&P 500 Returns Past 10 Years
The Risk Level travels on a scale of 0 (extremely low
risk) to 10 (extremely high risk). Based on our study
of indicators and technical movements, it represents
the risk to traders of a correction over the next 3
months.
The data and analysis contained herein are provided “as is” and without warranty of any kind. Sundial Capital Research, Inc., its employees, or any third-party data provider, shall not have any liability for any loss sustained by anyone who has relied on the information contained in any publication published by Sundial Capital Research, Inc. No report shall be considered a solicitation to buy or sell any stock or security. This communication reflects our opinions as of the date of this communication and will not necessarily be updated as views or information change. Sundial Capital Research, Inc. and its respective employees may have lpositions in the securities discussed herein and may purchase or sell such securities without notice. The information contained herein is believed to be accurate to the best of our knowledge, and we make no guarantees that there will not be errors from ourselves or third-party data providers. We make every effort to validate data integrity, but occassionally errors do occur and we subsequently make an effort to disclose that to subscribers. Further distribution prohibited without prior permission.
The Correction Risk Level is a quick way to gauge what our indicators and studies are suggesting. The higher the risk, the more likely the market is to decline. Another way to look at it is in terms of cash. If the Correction Risk Level is 0, then we would be more inclined to keep 0% of our portfolio in cash (i.e. we would be fully invested). But if the Correction Risk Level is 10, then we would be more inclined to keep 100% of our portfolio in cash (i.e. no exposure to stocks).
In both cases, we take the overriding trend of the market into account. If the indicators are showing excessive amounts of bearish opinion, then the market is more likely to respond favorably to that if we're in a bull market, and the Correction Risk Level would be lower. But if we're in a bear market, then bearish sentiment extremes are less reliable, and the Correction Risk Level would be a bit higher.We take our studies into account as well. So if the indicators are murky, but we have some very compelling studies suggesting the market should rally, then the Correction Risk Level might be lower than the indicators would suggest.
The default Correction Risk Level is 5, which is where it would be if there is no edge present among our indicators and studies.
We do not suggest using these Correction Risk Levels in any kind of mechanical way. They are meant to help support any existingtechnical or fundamental research you may be doing. When the Correction Risk Level is very high, though, we do recommend backing off on long positions or possibly considering short positions (especially during a bear market). For both time frames, aCorrection Risk Level below 3 can be considered "low risk" while a level above 7 can be considered "high risk". The more extreme the Correction Risk Level, the more likely the market will respond in a timely manner.
The most likely time for these Correction Risk Levels to fail is during a time of trend transition from a bull to bear market (or bear to bull). That is often good information in itself - if the Correction Risk Level is very high, for example, but prices continue to rise, then that is a heads-up that buyers are very interested, and we will likely see even higher prices going forward.
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