This morning I opened up a debate about whether or not extreme sentiment works as a good market indicator anymore. Doug Kass says no, I say perhaps and then in the comments section, reader JB McMunn left this banger, which I really like:
Unless you want to argue that sentiment is a 100% reliable indicator there will be times it is wrong.
Bullish sentiment has to pass through 25% on the way down to 15%.
The historical information we have on sentiment was gathered during times when we weren’t in the middle of a severe global deleveraging/deflationary environment. If anyone wants to be optimistic about Europe, China, the USA, etc be my guest.
These days investment focus is on reading the macro tea leaves, like whether Merkel shook hands with Hollande, kissed him on the cheek, or slapped his face.
Most of the trading is computers trying to figure out what other computers are going to do.