Sentiment Trader: Never Follow The Crowd

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sentiment trader

Updated May 2020

Sentiment Trader:  Market Sentiment Is Easy To Gauge

Wikipedia defines anxiety as an emotion characterised by an unpleasant state of inner turmoil, often accompanied by nervous behaviour, such as pacing back and forth, somatic complaints, and rumination. It is the subjectively unpleasant feelings of dread over anticipated events, such as the feeling of imminent death. Anxiety is not the same as fear, which is a response to a real or perceived immediate threat, whereas anxiety is the expectation of a future threat. Anxiety is a feeling of uneasiness and worry, usually generalised and unfocused as an overreaction to a situation that is only subjectively seen as menacing.

Anxiety-like fear is an emotion that is totally useless when it comes to trading the markets. In fact, one could argue that they are almost the same thing. An anxious person worries about events they cannot see but they are highly capable of creating a mountain of a molehill. Fear is usually based on something tangible but anxiety is based on something that is not real.  Both these emotions are destructive and should be avoided at all costs.  The Anxiety Index allows the astute trader to use this data to gain an edge in the financial markets.

Sentiment Trader: Market Sentiment Helps Identify the Markets Trend

The Tactical Investor is the only financial site to maintain such an Index. It took years to develop and is based on data that we personally collect.  We don’t have to rely on second-hand data that might be tainted as we control the data.  We are continually fine-tuning our data collection protocols.  The latest development includes an AI (artificial intelligence component) which scours the net for keywords and phrases. The phrases are then ranked and given values ranging from 0-100.

. If you ever wanted to see what is going on in the mind of the average investor, then this index provides a very clear picture.  The pictorial format makes the data easy to understand and implement. We are confident that it can significantly improve your trading results. Imagine knowing in advance what the crowd is thinking and or doing. This index has helped keep us on the right side of the market for years.

When all the experts were busy proclaiming that this stock market would crash and burn, we begged to differ.  With this Index and the trend indicator, we viewed every strong pullback as a buying opportunity and to date that strategy has paid off handsomely.  Our subscribers have locked in massive gains over the years and will continue to do so for the foreseeable future.

The Anxiety index: A great tool to provide insights into Stock Market Sentiment 

This index gives you an insight into the mass mindset. It allows you to see whether the masses are agitated or in a calm mode.   The best time to buy is when the Masses are in the Panic or hysteria zone, and the best times to take profits or sit on the sidelines are when the crowd is in the mild to Calm Zone.  Throughout this bull run, the Crowd has hardly ever moved past the moderate zone, and we find that fascinating, particularly since the market has gone to put in a series of new highs.

 

Anxiety index is a great tool to get a gauge on Stock Market Sentiment

The Anxiety index and the market sentiment chart (below) provide a very accurate picture of the market when combined with the Trend Indicator. This index gives us a peek into the mass mindset; it allows us to see whether the crowd is anxious or calm when it comes to investing in the markets. The crowd has been anxious for months on end and to their dismay, the stock market has continued to trend higher. The latest Anxiety index numbers confirm that nothing has changed.  The crowd is apprehensive and the Stock market bull seems to delight in this.  It continues to trend higher and higher, as the crowd continues to worry.

The Bull, Bear and Neutral Percentages provide further insight into the state of the masses 

Bull & Bearish market Indicators stating market is going to trend higher

This chart provides further insights into the crowd’s stance regarding this bull market.  At the Tactical Investor, we focus extensively on the state of the mass mindset. The study of the masses is also known as Mass Psychology; this is the single most effective tool when it comes to gauging market direction.

Buy When The Masses Panic and sell when they are Joyous

This stock market will continue to trend higher until the Crowd throws in the bucket and joins the party.  Stock bull markets never end on a note of anxiousness. History indicates that bull markets always end on a note of Euphoria.

Tactical Investor Update August 2019

The Dow has tried to trade above 26,800-27,000 ranges almost 19 months. Furthermore, these attacks have been widely spaced out.  Hence, the Dow is now at an inflexion point”; it either blasts above 27,000 and in doing so former resistance turns into strong support

Alternatively, if it fails to hold above 27K (after trading above it) the pullback could range from medium to strong. A medium pullback would end in the 25,500-25,800 ranges. A strong pullback could take the Dow all the way down to 24,5K (plus or minus 200 points).

This outlook is based on the short to intermediate timelines; the long term picture is still bullish. We are not worried about a sharp or medium pullback for the only thing that changes is the opportunity factor. When the trend is up, strong deviations are viewed through a very bullish lens; in other words, the strong the deviation, the better the opportunity factor.   If the above comes to pass, it will be a good time to test your resolve for it is easy to buy when the situation appears to be calm, but when it’s not most panic and run instead of embracing the opportunity. It’s amazing how when a market is soaring everyone wants to get in and pay more and more, but the same individuals that were willing to pay more are now afraid to pay less for the same stock.

Random notes on the Market and COVID Market Sell off.   May 2020 Update

To put things into perspective, consider this: If cancer were a virus, it would be one of the most lethal viruses of all time, yet no one blinks that we lose 9.6 million people a year to this insidious disease. Until mass-scale testing is underway and the data is broken down into categories such as age group and other pre-existing conditions, all the massive death projections experts are issuing amount to faulty science.

It appears that the only course of action on the table is to give in to panic and flee for the heels. Well, that’s true if you are part of the herd; such action brings short term relief at the expense of monumentally large gains for the long-term player. Nobody knows the inner workings of a company better than the insiders and these chaps are doing something that can only be described as unprecedented, further confirming that this sell-off represents opportunity instead of a disaster. We will finish tabulating the latest batch of sentiment data tomorrow and another update will be sent within 48 hours if not sooner.

It appears that markets are experiencing the “backbreaking correction” one which every bull market experiences at least once and is often mistaken for the end of the bull.  In today’s manipulated markets, one cannot tell which correction will morph into the backbreaking correction, as free-market forces have almost been eliminated from today’s markets.  While it feels like the end of the world, such corrections always end with a massive reversal.  Given the current overreaction to the coronavirus, there is now a 70% probability that when the Dow bottoms and reverses course; it could tack on 2200 to 3600 points within ten days. Interim update March 9, 2020

Mother of all buying opportunities?

The 1987 crash and 2008 crash fell into the category of the “mother of all buying opportunities“, but we could get a setup that could blow these setups and create the “father of all opportunities“. Such an event is so rare that it might occur only once during an individuals lifetime. In the short term, there is no denying the landscape looks like a massacre, but if one is going to focus solely on the short timelines, then the odds of banking huge profits are quite slim.

Just 15 days ago, everyone would have begged for such prices, but 15 days later everyone is ready to throw the towel in.  The volatility is likely to continue until the end of the month, especially since V readings soared by a whopping 650 points to an all-time high. Again, think about it, when was the last time the Fed dropped rates by 150 basis points in two weeks.  This is a massive development but its overshadowed by the current hysteria. As we stated before, companies are going to go ballistic with their share buyback programs.

When the panic subsides, it will create a feeding frenzy of the likes we have never seen before.  When you combine zero rates, two trillion dollar injection by the Feds and several more billion-dollar packages designed to stimulate the economy, the result is going to be a market melting upwards. The markets will be driven to heights that are unimaginable by today’s standards. Zero rates are also going to force a large portion of individuals on a fixed income to speculate, and these guys have a lot of cash sitting on the sidelines.

The masses are in a state of disarray and until they embrace this market, the markets will continue to defy logic and trend higher.  Hence the only play, even though it goes against all s0-called common-sense measures of long term investing, is to embrace all sharp corrections.

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