CITI: PANIC RESURFACES

One of our favourite stock market sentiment indicators is the Citigroup Panic/Euphoria Model.  Indeed, it’s the favoured metric of Tobias Levkovich, Citi’s top U.S. equity strategist.

The model is a contrarian indicator, which means high levels of panic mean it’s time to buy stocks.

In his latest Monday Morning Musings report, Levkovich notes “sentiment has shifted rapidly from complacency in March to panic in the latest readings on our unique Panic/Euphoria Model.”  More from his note:

“Panic” resurfaces. Admittedly, markets rarely get that “cataclysmic crescendo of capitulation” to call for buying stocks, but proprietary measures such as the Panic/Euphoria Model now are intimating that upside opportunity has re-emerged. Meetings with institutional investors do not anecdotally demonstrate that people are “freaked out,” but the sharp decline over the past six weeks has caused significant deterioration of sentiment (even amongst credit investors). Other metrics still are not providing the requisite buy inflection such that a more positive view for stocks is appropriate but that nuance does not imply a willingness to grow long bull horns yet.

The model isn’t screaming buy yet.  But it’s worth noting that it’s pretty reliable.  Last October, it predicted a 98 per cent chance of a double-digit return in stocks, and it was right.

Here’s the up-to-date chart:

chart

Photo: Citi Investment Research & Analysis

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