The chart below shows the Sentiment Indicator going back from 2005 to the present day. As you can see, it's not perfect, but does do a decent job at showing market tops. The Sentiment Indicator has been back-tested, by hand for reliability. Data goes back to 1992/93.
Sentiment Indicator: Historical Chart vs. S&P500 Index.
The table below shows the results of my Backtesting. Highest accuracy was in the T1 (one month time period) after Sentiment Indicator gave a High Risk/Bearish Signal (which would be a lower number, e.g., below 4.0). Average subsequent S&P 500 loss was 2%.
I refined the Accuracy/predictive power of the Sentiment Indicator by examining at (and from) what levels it worked best. When the Sentiment Indicator is well-below its recent peak, the Sentiment Indicator works best. The most recent signal (1/2011), and two previous: 1/2010 and 4/2010, have followed the above trend. This raises my Confidence level in the implications of the current reading.
Sentiment Indicator: Historical Chart vs. S&P500 Index.
The table below shows the results of my Backtesting. Highest accuracy was in the T1 (one month time period) after Sentiment Indicator gave a High Risk/Bearish Signal (which would be a lower number, e.g., below 4.0). Average subsequent S&P 500 loss was 2%.
I refined the Accuracy/predictive power of the Sentiment Indicator by examining at (and from) what levels it worked best. When the Sentiment Indicator is well-below its recent peak, the Sentiment Indicator works best. The most recent signal (1/2011), and two previous: 1/2010 and 4/2010, have followed the above trend. This raises my Confidence level in the implications of the current reading.
