Nasdaq Sentiment Index Hits All-Time Low---A Contrary Buy Signal?

The last time this indicator fell by so much was back on June 13 2011 when the NASDAQ sentiment index hit -194. We mentioned (see Negative Sentiment Suggests A Near-Term Bottom) that from a contrary perspective, this was a short term buy signal with the markets likely to rally. SPY was at 127 on June 13th. By July 7, SPY had risen all the way to 135.

Well it is that time again. The NSI has hit a new all time low of -342, showing just how much fear is currently priced into the market. This is a bullish signal for contrary investors who buy fear and sell euphoria as Jim Rogers would say.

I expect the market to trade sideways for a while before the new leg higher. Similar to what happened in late June of 2011. It would be hard to imagine a significant fall from these levels barring some kind of European Lehman event.

click chart for larger image.


Black Swan Insights


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