Market sentiment has finally back to normal according to Citi’s Panic/Euphoria model. The firm notes that sentiment is now ‘barely in panic territory’ in its latest PULSE Monitor report.
This week’s Panic/Euphoria reading was -0.21; versus last week’s revised number of -0.23, generating a high probability of a rally over the next six-to-12 months.
What’s interesting is how well this model worked during the recent crisis, whereby forward returns (shown in grey above) ended up being high when sentiment collapsed in early 2009 (shown in blue above). It’s also starting to look like the drop in sentiment during Q2 of this year will end up having been a good buying opportunity as well.
(Via Citi, PULSE Monitor, 15 October 2010)