By Rob Williams, Sage Advisory
Several of the technical/sentiment indicators we monitor are suggesting equities may be getting stretched. One indicator in particular caught our eye. The American Association of Individual Investors Bullish/Bearish Sentiment (below) reached a multi-year high last week signaling extreme bullish sentiment toward equity markets among individual investors. The current reading is a standard deviation above the norm (on a 4-week moving avg. basis), suggesting investors have become too bullish and begging the question, are we in for a correction near-term?
We dug into what this level has meant in the past for investors, at least over the last 13 years. This level has been hit three times previously since 2005. In all cases markets experienced some volatility and small drawdowns ranging from 1%-6% at some point during the following three month. However, in all three cases the S&P 500 Index was higher three months later, by an average of 3.3%. Bottom line, we are likely to get a small/medium correction soon, but given the fundamental picture, it would not be the start of something larger. And, if the correction is greater than 10%, we would likely consider it a good buying opportunity.
This article was written by Rob Williams, head of research at Sage Advisory, a participant in the ETF Strategist Channel.
Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.
Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our web site at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.