Sentiment Has Hit An Extreme Reading According to Ned Davis

Ned Davis does excellent work when it comes to sentiment research and technical analysis. Most recently, their proprietary sentiment indicator has broken above 70%, indicating extreme optimism in the equity market. Brad Lamensdorf over at Forbes highlights the sentiment data and provided the following chart. As you can see, the market has not fared very well when sentiment has gotten to this extreme of a level.

From Forbes:

The latest Crowd Sentiment Poll compiled by Ned Davis Research has now broken through 70 to a reading of 70.9. This level rivals the most extreme readings of this contrarian indicator over the last 10 years. The measure is a proprietary compilation of sentiment measures, and NDR has published the Sentiment Poll long enough for it to have a track record. Right now, the record says, “Watch out.”

According to Ned Davis, the S&P 500 has returned nearly -17% since 1995 when their sentiment indicator breaks above 70. We have seen frothy sentiment data spike up a couple of times this year. However, this isn’t the first above 70 reading the proprietary indicator has recorded this year, we’ll see if this extreme reading is able to slow the bulls advance or if we continue to trek higher.

Source: Sentiment Blow Out (Forbes)

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