We publish a weekly sentiment reading in The Buyback Letter (www.buybackletter.com). Last week sentiment registered a reading of 216.00 a negative reading. We are now in the May-October time period (historically the May-October time frame has underperformed the November-April period). We use the sentiment indicator as a guide for investing new funds into the market, not as a timing tool to exit or double up on stocks. When sentiment tells us the market may be at or near a low, we consider that a buying opportunity for the investment of new money. Conversely, when sentiment indicates a market peak, we will take a more cautious approach to the investment of new money. Our sentiment indicator is an inverse indicator, so the lower the score is, the higher the reading. To get the score, we add the total bullish percentage readings of Investors Intelligence (contact tel. #914-632-0422), Consensus Index (816-373-3700), AAII Index (312-280-0170) and Market Vane (626-395-7436) and average this figure for the week. An average reading of more than 200 is considered negative and warrants a cautious approach. Readings of 240 or more have signaled market highs over the past few years, while readings of 130 or so have shown market lows for the past few years.
This reading, while not the most extreme that we have recorded, coincides with the release below from Reuters which addresses the record inflows into ETFs and stock market funds last month. The two data points would indicate some near term caution may be appropriate for the market.