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NDR Crowd Sentiment Poll At April 2010 Highs




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.

Click chart to see larger version in a new tab:
NDR Crowd Sentiment Poll 2 Nov 2010
Source: Ned Davis Research

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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28 Responses to “NDR Crowd Sentiment Poll At April 2010 Highs”  

  1. 1 Minion

    Funny thing about sentiment indicators - like all oscillators, you never know if reaching a historic high means the crash is here, or just a small pullback, or nothing. I guess this is why algos were invented - to take all the work and emotion out of simply following a price trend.

  2. 2 Babak

    Minion, you're right. The NDR Crowd Sentiment for the S&P 500 index was above "extreme" or 61.5% in March 2010. I think about it this way, it is telling us that the risk is now with the longs. Any further positions from this level will be reversed, even if the market does push momentarily higher.

  3. 3 j'adoube

    I have to say that I don't see any NDR sell signals that would have gotten you into much trouble before a subsequent NDR buy signal. That's pretty impressive, and I would classify it as "safe to sell into strength" to say the least.

  4. 4 PEJ

    I hope their indicators are more reliable than their web site :-) ;-)

    This webpage is not available.
    The webpage at https://www.ndr.com/invest/public/contactus.jsp might be temporarily down or it may have moved permanently to a new web address.

    By the way, according to the bloomberg interview, they were expecting a 3-5 % correction. That doesn't seem much compared to the extreme bullish sentiment on their index.

  5. 5 Farhan

    This is a good comprehensive sentiment indicator.

    As Minion said, sentiment is just an indicator and should be treated as such. It can get overly optimistic and then stay at that level and similarly for the pessimism, because "Markets can remain irrational, more than one can remain solvent." However, sentiment can verify the correct Elliott Wave count. Here, I would like to clarify that based on my trading experience Elliott Wave is also just an indicator. It can help you spot probable turns but does not guarantee any thing.

    Therefore, one should always follow the direction of the market, with risk assessment tools like sentiment, Elliott Wave and Technical Indicators, but should not force his will onto the market.

    Babak, is the NDR sentiment indicator available to the public?

  6. 6 wyatt earp

    Whilst I have considerable respect for NDR, this chart appears to be a little dated. The caption at top suggests it was updated nov. 9, before the pullback began. I would be surprised to see that sentiment hasn't taken a nosedive downward since then. My opinion is that tuesday likely marked the bottom of this fairly mild pullback. Price is likely to move up from here during the holiday season. Of course, I'm employing sound risk management should my analysis be proven ridiculous. Best of luck to everyone.

  7. 7 Babak

    wyatt, the chart was accurate as of the date of posting. It is updated every week (on Wednesday).

  8. 8 clydeDNA

    The "extreme optimism" sure doesn't last very long. It looks fleeting.. Why is that? I would think that it would feed on itself, but what is happening? Each time... crash and burn. You know just when I get excited about how smart my investment choices were, they all crash altogether.

  9. 9 steveo

    It's a beautiful Full Moon, and Euro rising on bailout!

    From the land of WTF?

    Ireland, after just days before, steadfastly denying it needs financial help, is forced to accept help.

    Down below, please review the S&P 500, especially the Fib Fan from the Great Depression and the Big 61 Fibo, both now in play, both extremely bearish

    And the Euro overall up on that news. Very odd. Perhaps what they nicely refer to as an exhaustion top/spike. Which basically means a last minute manipulation before the real direction is set.

    NZD as a currency got hammered in Sunday action, against all others that I viewed.
    I was snaked out of my copper short, and glad I had stop in place. Somehow I got a decent fill on a gap up. Again, with Eurozone blowing up I was surprised that USD down and copper up.

    Went back in short copper at a higher price---based on the PRS kickdown shown in this blog last week.

    Scanning the futures and FX, I really don't see anything "obvious".

    Expiry was last Friday, and often the Monday after sees some serious moves as the market gets back to normal.

    STRATEGY: set some orders to activate either long or short based upon a move. For ES (S&P 500 futures) I will accept an 8 point move beyond the entry point as profit stop. And a 1.25 point stop as a loss.

    I get alot of periodicals. This one called Assembly is hilarious. Upset Zombie Workers, on the production line.

    And here it is, the Fib Fan from Great Depression

    http://oahutrading.blogspot.com/

  10. 10 Tiho

    Here is a summary:

    Don't worry about the rally Euro, it is a dead cat bounce. Stay bullish on the greenback, its a winning trade.

    You should have expected a bounce on Tuesday night as we got short term oversold on risk assets.

    But on the weekend, as all the sentiment reports came out, we saw the extreme bullish sentiment theme continue in stocks, currencies and commodities. Speculators contracts have gone nuts in Crude Oil, at the wrong time, while newsletter professionals hit their highest sentiment readings since early 2007.

    Now that we got a bounce, you should stay long USD and short risk assets.

    In the last few hours Euro, Gold, Oil and S&P 500 started to fall again.

  11. 11 Mike C

    Friday's usual sentiment update post???

  12. 12 Aly S.

    This is the longest this blog has gone without an update, that I've seen.

    I hope Babak is okay. Even just a quick post to let us know his status would be nice.

  13. 13 PEJ

    @Aly
    Well, it's true that it's been a while, and I was assuming it's thanksgiving week, but now you got me worried

    @Babak
    Please let us know you're ok! :-)

  14. 14 Blogster

    Hi Babak,

    Thanks for this blog.

    The part of this blog that helps me the MOST is the weekly sentiment review. If one day you decide to eliminate posts, please please keep the weekly sentiment review.

    In fact, I would even pay a small subscription price for the sentiment review alone...

  15. 15 Bo

    Hope this quality blog can keep going on......

  16. 16 Babak

    Hello everyone and thank you for the outpouring of concern, emails, messages, etc. I'm ok but I'm afraid I can't say the same for my install of wordpress. I've been wrestling with it for a few weeks now and it seems to have finally gotten the upper hand.

    It is extremely frustrating since I've been writing as before but it won't let me save, publish, etc. I'm having a hard time trouble shooting it as it seems random - almost as if it doesn't like certain words/characters... very strange. If you're a wordpress exorcist drop me a line. Otherwise, please bear with me and we'll have this sorted out soon.

    One option is to switch to wordpress.com or blogger for a short time. I'm looking at that and other options. But yes, the blog will continue. Right now I'm just really frustrated... :(

  17. 17 Tim

    I operate a few hobby-oriented blogs on blogger and have tried a few times to switch to other platforms like Wordpress, but it was too complex for me so I went back to Blogger.

    The other solution is to switch to a MUCH BETTER platform such as http://www.squarespace.com/. The $20 a month package would probably be the one for you, but if you wanted to take this blog farther then the $36 a month package would be best. With the most premium package, you can do such things as user registeration and private pages.

    The cost could be more then made up for through Google Adsense. This website has an Alex rating of 116,000 which means it probably has a few thousand users per day. You could probably make a few hundred off of Google Adsense alone which would be more then enough to pay for Squarespace.com.

    Blogger is for people who want a simple no-nonsense blog, Wordpress is for those who want to take it a few steps further (but you have to be a computer programmer to truly make it work) and then there is Squarespace for the real professionals.

  18. 18 Tiho

    You better get the site running soon mate, coz we got a potential storm brewing in the financial markets. You are going to miss the exciting times ahead!

    Equity and commodity sentiment has been running very high for weeks now, while the US Dollar is in a good position to break out and start a strong rally. CRB Index as well as commodity currencies are showing weakness too!

  19. 19 Saki

    Either just make the switch or I am certain someone here knows wordpress and can assist...

  20. 20 MidKnight

    Babaaaaak we miss you!!!

  21. 21 Farhan

    Hey Babak,

    Hope you are doing well. Its been a while since you have posted. I have put together a Market Analysis Matrix and hope that you will find it interesting at: http://understand-s-thrive.blogspot.com/

    By the way, what happened to OEX put-call ratio recently? How should one read into such a sudden bearish jump?

  22. 22 Tiho

    OEX Put Call Ratio, also known as "smart money", doesn't work well at all and gives plenty of wrong signals - read.

  23. 23 PJ

    Are you away on vacation the last post is "Ned Davis".

  24. 24 Tiho

    No one does it better than this blog, but in the mean time check, while its down, check out this weeks sentiment report including AAII & II survey reports, equity only put call ratios, ICI equity fund flows, volatility, currency speculator positioning including cumulative US Dollar positioning by the futures market, commodities sentiment which includes speculative futures contract positoning and Daily Sentiment Index for Crude Oil, Gold, Copper and Corn. Latest look at the PIIGS bond yields and US States credit default swaps both of which are impacting sentiment in the currency and bond (muni) markets, as well as a recent look at the ECRI readings in the US.

  25. 25 wikkki

    BABAK where are yoooooooooooou? i miss you man, please back to work :)

  26. 26 hans

    I am sorry to say, however, WordDepress simply sucks...

  27. 27 Babak

    Thank you all for your patience. Click for the temporary home of Trader's Narrative.

  28. 28 hans

    Herr Babak, I must say the new format looks very pleasing!

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