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Introducing the TDC Equity Sentiment Poll

September 8, 2016

A few weeks ago I put up a poll questioning whether my followers on Twitter (of which there are about 12k) were bullish or bearish on equities *and* whether the primary rationale was technicals or fundamentals. Since then I've asked the same question each week and we now have 10 weeks of data. This is a series that I will look to maintain.

 

This article shows some of the initial results of the trends in this new sentiment index, some potential applications, and findings for the market outlook.

 

First up is a view of the answers across the past 10 weeks (note I've called it the TDC [topdown charts] Sentiment Poll). There's a couple of interesting points e.g. the persistently high scoring for bullish on technicals and bearish on fundamentals. I think this accurately captures how a lot of people are thinking i.e. 'don't like the fundamentals, but happy to be long in an uptrending market'.

 

Bullish on fundamentals doesn't seem to move around much so far, but bearish technicals seems to be quite sensitive to changes in market conditions - and thus something that could be used in shorter-term timing signals.

Second is a look at the traditional bulls minus bears spread vs the S&P 500 - which is a fairly standard way of using investor sentiment (e.g. this method is used on the AAII and II surveys). While we're only dealing with 10 weeks of data there does seem to be the typical contrarian use of the indicator at the minor low of last week. Perhaps more interesting is the way the indicator rolled over before price did - something to watch for in future updates of the indicator.

Finally it's also worth a look at the spread between bulls and bears separately for the fundamental, and technical rationales. The charts displayed below show similar but slightly different movement to the headline bulls-bears spread but so far fundamentals appears to trend more vs technicals which appear to move more quickly and sharply in relation to market price developments.

 

Also displayed is a look at the spread between the total votes using technicals vs fundamentals as the primary rationale. I suspect this metric should produce some interesting signals - so far it seems respondents are more reliant on fundamentals at the bottom.

 

 

The final piece is the number of responses - which I suspect will rise and fall depending on the varying market mood and level of uncertainty... a higher level of uncertainty might see greater interest and participation.

 

Summary

Overall the first 10 weeks of this new sentiment indicator have revealed some interesting trends to keep an eye on. The poll certainly appears to have promise as a new stock market timing indicator and more time and data will likely reveal further applications and uses. At this point the bulls-bears spread has turned up from fear levels which is usually a positive/bullish signal for sentiment indicators.

 

Bottom line: This is a useful and interesting indicator which is worth keeping an eye on and is currently mildly short-term bullish for equities.

 

 

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