The Weekly Market Sentiment Report: 23rd April - 30th April 2023
The Weekly Market Sentiment Report: 23/04/2023 - 30/04/2023
CONTENTS
EVOLUTION OF THE REPORT
ECONOMIC CALENDAR
THE PUT-CALL RATIO SENTIMENT STRATEGY
THE GAMMA EXPOSURE INDEX (THE WHITE INDEX)
THE AMERICAN ASSOCIATION OF INDIVIDUAL INVESTORS
THE COMMITMENT OF TRADERS REPORT: NORMALIZED VALUES
BITCOIN’S FEAR AND GREED STRATEGY
THE ISM PMI: THE CEO’S SENTIMENT
THE NON-FARM PAYROLLS SIMPLE PREDICTION METHOD
THE UNIVERSITY OF MICHIGAN CONSUMER SENTIMENT INDEX
DISCLAIMER
EVOLUTION OF THE REPORT
This report will grow in time due to feedback and new techniques put into place. You may notice new markets added or other markets removed. Similarly, new techniques and strategies may be added or having their presentation changed so that everyone benefits from this report. Make sure you contact me for your feedback (i.e. nature of the document, its usefulness, its time interval, its content, language, etc.).
At the moment, the future changes over the coming months can be summed up as follows:
Adding the Bullish Percentage Index, a collection of individual technical indicators calculated on each stock of the S&P 500. Following this, a global index is constructed in order to calculate the current sentiment.
Adding the COT Pattern Recognition System: This is a pattern recognition algorithm on the values of the COT.
ECONOMIC CALENDAR
THE PUT-CALL RATIO SENTIMENT STRATEGY
The equity put-call ratio published by the CBOE gives insights to the current market stress. Historically, the correlation with the stock market (S&P 500) has been intuitively negative with around -0.40 correlation using the Spearman rank correlation coefficient (with -0.32 correlation given using the Pearson correlation coefficient). Similarly, the maximal information coeffcient (MIC) which measures the degree of non-linear relationship has given 0.20 which suggests there is a relationship between the two time series (whether negative or positive).
The strategy uses a type of mean-reversion technique on the put-call ratio to derive signals. The performance of the sentiment model is found below.
Conclusion: The sentiment scanner is looking for the next signal since giving a bullish signal a few weeks ago which has seen its potential. Keep in mind that this is a daily indicator. The latest observation is 22/04/2023.
Historical Performance
THE GAMMA EXPOSURE INDEX (THE WHITE INDEX)
The Gamma Exposure Index (GEI), a proprietary indicator created by financial analytics firm Squeeze Metrics. A stock's or other financial asset's exposure to fluctuations in the general market or benchmark index, usually the S&P 500, is measured by its GEI. The GEI, to put it simply, assesses how sensitive a stock's returns are to fluctuations in the market. A stock's returns are thought to be more closely correlated with market movements if the GEI is higher, whereas the opposite is true if the GEI is lower. Squeeze Metrics employs GEI to shed light on a stock's or portfolio's risk profile and point out potential avenues for diversification or risk management. Historically, the GEI is correlated with the S&P 500 (around 0.30 across all three different correlation metrics).
The strategy uses a type of mean-reversion technique on the put-call ratio to derive signals. The performance of the sentiment model is found below.
Conclusion: According to the GEI’s strategy, the model is looking for the next signal. The latest observation is 22/04/2023.
Historical Track Record
THE AMERICAN ASSOCIATION OF INDIVIDUAL INVESTORS
The AAII is an equity-based sentiment indicator published by the American Association of Individual Investors every week. The sentiment strategy combines it with the RSI and a 200-Day moving average. The performance of the sentiment model is found below.
Conclusion: The sentiment scanner is looking for the next signal since giving a bullish signal a few weeks ago. Keep in mind that this is a weekly indicator. The latest observation is 22/04/2023.
Historical Track Record
THE COMMITMENT OF TRADERS REPORT: NORMALIZED VALUES
The U.S Commodity Futures Trading Commission (CFTC) publishes statistics of the futures market on a weekly basis called the Commitment of Traders (COT) report. The report has many valuable information inside, namely the number of futures contracts held by market participants (hedge funds, banks, producers of commodities, speculators, etc.). Two main categories have to be distinguished:
Commercial players: They deal in the futures markets for hedging purposes (i.e. to cover their operations or other trading positions). Examples of hedgers include investment banks and agricultural giants. Their positions are negatively correlated with the underlying market.
Non-commercial players: They deal in the futures markets for speculative reasons (i.e. to profit from their positions). Examples of speculators include hedge funds. Their positions are positively correlated with the underlying market.
The COT meter takes the difference between the net non-commercial players and the net commercial players in order to get a final net value which is supposed to be positively correlated to the underlying asset.
For example, if the Canadian Dollar is showing an extreme value of 100, then this means that taking into account the past 26 weeks (6 months), the net market positioning has been overly bullish which could mean that a correction may be likely. The following table summarizes the current state of the markets with the optimal opportunities:
