The chart below was created on 10/21/2022 by All Star Charts. It is reflecting the 4-week moving average of a few key Investor Sentiment indicators.
On the top is the valuation or Corporate America, as measured by the S&P 500. By viewing the valuation on the right, you will notice a reduction from the peak of nearly -25%.
One the bottom of the chart is the Sentiment Composite of the American Association of Individual Investors six-month investment outlook for Bearish (negative outlook) versus Bullish (positive outlook). This is tracked along with the Chicago Board of Options Exchange (CBOE) Volatility Index.
In the All Star Charts example, they are reporting that investor sentiment is at approximately the same negative levels where market valuations offered reasonable entry (buy) points.
Focus on the three green circles on the top graph and notice where investor sentiment was below each in the bottom graph. All three, going back to the Great Recession in 2008, offered nice returns thereafter.
On the far-right bottom of the graph, note the green circle suggesting we are once again at a positive point to enter our ownership positions in Corporate America.
Also notice there is not a circle on the top chart above the current green circle on the bottom right. Why? Well, because we don’t know if this is the bottom in valuations or not!
What we could reasonably conclude is that historically speaking, when the investment crowd is lopsided on one side or the other, the trend is close to reversing!
This is suggesting to me that it is possible the bottom for this bear market is in, but there is not yet a trend. And, as you know, I need a trend!
Knowing we are working with “five-year money”, we will be waiting and watching for a trend before we start “nibbling” back into our favorite investment positions.
I’m interested in your thoughts, comments and observations. Feel welcome to call, email or stop by the office and say Hi.
James O. Lunney, CFP®
CERTIFIED FINANCIAL PLANNER™ Professional
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Investing involves risk including loss of principal. No strategy assures success or protects against loss.