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Sentiment Score Enters Sell Territory

Our Cyclical Trend Score (NYSE:CTS) searches for likely cyclical inflection points in the stock market through the analysis of a large basket of fundamental, technical, internal and sentiment data. When market sentiment rises to a bullish extreme, our sentiment score often declines into sell territory, indicating that the rally has become vulnerable to the development of a correction. This week, the sentiment score entered sell territory for the first time since April 2012.

 

 

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Notice that every time the score has declined into the red area, a violent correction has followed. This type of market behavior is typical during late-stage cyclical bull markets that occur during secular bear markets. Additionally, as we noted yesterday, the current short-term uptrend from November has been rising at an unsustainable rate, so it will likely be followed by a potentially violent overbought correction. Therefore, short-term risk is high and traders should prepare for the likely development of a meaningful retracement sometime during the next several weeks.

We will identify the key developments as they occur in our daily market forecasts and signal notifications available to subscribers. Try our service for free.