In last week’s blog post we noted several similarities between today’s market situation to that of 2008. Then as now, we see lower levels in market sentiment volatility coupled with a momentary upswing in SentiTrade values. As forecasted, this brought the DAX to higher levels this week. Read more

Tags bull bear indicator - bull bear psychology - corrective waves - crowd psychology - excessive investor optimism - market reversal - sentiment volatility

Recently, we’ve looked into a new trading concept called “Mind The Gap”. The strategy looks at how the sentiment develops towards the end of a the day. We then use this data to anticipate the opening gap for the following day. Although it is well know that (very) bad news publish after market close, our data show days ending on a positive note to be followed by a positive opening. Read more

Tags behavioral finance - bull bear psychology - crowd psychology - end of day sentiment - excessive investor pessimism - gap trading - market psychology - market reversal - market sentiment - sentiment volatility

Over the last couple of days, we’ve compared the current SentiTrade’s values to those of the Lehman crisis in 2008. At the time of the Lehman collapse, our sentiment quotient (the ratio between positive and negative news items) had a value of 0,51 with a yearly average of 0,54. Read more

Tags behavioral finance indicator - bull bear psychology - crowd psychology - market reversal - market sentiment - market sentiment values - overreaction hypothesis - psychology trends - sentiment analysis - sentiment trigger point - sentiment volatility

We didn’t need a market sentiment indicator the past few days to tell us that the market was on edge. The European Central Bank waited until after market close last Friday to publish the stress test results. Although it came out better than expected, doubts were quickly raised because the test didn’t appropriately deal with the financial ramifications of a Greek default. Read more

Tags asset allocation - behavioral finance indicator - crowd psychology - market psychology - market reversal - market sentiment - risk on risk off - sentiment analysis - sentiment indicator - sentiment trigger point - sentiment volatility

Behavioral finance starts with the acknowledgment that investors are less rational than we would like to admit. Specifically, this theory states that conventional investment concepts ignore how people really behave… Let’s have a look at the main principles of behavioral finance: Overreaction: The stock market overreaction hypothesis (ORH) holds that if stock prices systematically rise and fall as a consequence of excessive investor optimism or pessimism, one can predict price reversals based on past performance. Read more

Tags behavioral finance - excessive investor optimism - excessive investor pessimism - Fear of Regret - Investment choices - market reversal - OHR - overreaction hypothesis