Sentiment Screams Caution!

What do you get when you combine multiple sentiment indicators to produce one sentiment poll?

Answer: The NDR Sentiment Poll!

Historical data from 1995-2010 using NDR Sentiment poll figures shows that when the index is above 61.5, the S&P 500 annual gain drops into the red, -0.7%.

Between 55.5 and 61.5, annual gains of 5.1% on average are seen while below 55.5 the average gains are 9.5%.

At what level is the NDR Sentiment Poll index now? As of just a few days ago, it was at 69%, suggesting a high degree of caution is warranted at this piont in time.

Since 2007, the five times the index has reaches this level or above, a market correction has shortly thereafter ensued.

However, back in 2005 this sentiment reading did not lead to a market decline of any note soon after and indeed the market kept forging ahead.

More often than not, market corrections have taken place and we think it's only prudent to consider increased hedging at this time as a result.

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