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During last week’s sentiment overview we went over several indicators which suggested that we are at another cusp of optimism.
The NDR Crowd Sentiment poll is another important indicator which is confirming that market condition. Unlike the AAII or the Investors Intelligence surveys, the Crowd Sentiment poll from NDR is an amalgamation of several such sentiment indicators. The actual variables and formula is proprietary but the advantage it offers is that with one single indicator we can keep tabs on the whole sentiment landscape before us. There are other such aggregate sentiment indicators of course, such as TrimTabs Demand Index or SentimenTrader’s “Dumb Money/Smart Money Confidence”. But for now, let’s take a look at NDR’s Crowd Sentiment poll.
NDR considers any readings above 61.5% to be “Extremely Bullish”. So the current level of 69% qualifies as such. The last time the Crowd Sentiment poll was at similar levels was in April 2010 when it peaked at a high of 70.7%. That of course, corresponded with the intermediate market top.
The history of this indicator suggests that the S&P 500 index will have trouble going forward. According to NDR, when the Crowd Sentiment is above 61.5%, the S&P 500 index returns an average of -0.7% annually. When it is in neutral (between 55.5% and 61.5%) equities gain 5.1% annually and when it is below 55.5 they gain almost double, 9.5% per annum.
As Tim Hayes recently mentioned in an interview with Bloomberg, NDR continues to be bullish on the overall trend of the market and believes that the bull is still in effect. But they have been telling clients to expect a correction, no doubt based on this extreme reading from the Crowd Sentiment poll.
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