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Sentiment Charts Reaching Blood In The Street Levels With SPY Down 11%

Kirk Lindstrom profile picture
Kirk Lindstrom


  • The time to buy stocks is when there is “blood in the streets”.
  • In late August through early September, my sentiment charts were screaming BUY.
  • This was a great time to buy for a tradable rally.
  • The S&P500 and SPY are 11% below their record highs.
  • Sentiment shows the amount of blood in the street is nearing the fall lows.

The time to buy stocks is when there is "blood in the streets" while others are fearful and selling. In late August through early September, my investor sentiment charts were screaming BUY and I added to many positions during this time. Since then, investor sentiment recovered quickly and I took some profits. Now I am:

  1. slowly buying again as sentiment is near the fall lows,
  2. SPY is again down double digits from its peak and
  3. the Russell 2000 index, down 22% from its peak value, is below its fall lows now in bear market territory.

Every week I review my sentiment charts of the weekly data. In this article, I compare the sentiment levels from various surveys in my table to get an idea of overall investor sentiment.

On Dec. 31, 2015 in end-of-year sentiment article, I wrote, "Charts 1a and 1b along with charts 3a and 3b below suggest some minor weakness during the early new year. This weakness could come if investors take profits in stocks like Microsoft (MSFT) and Amazon.com (AMZN) that were up a great deal in 2015 where they delayed taking profits to push the gains into the next tax year."

Last week, in "Weekly Sentiment Charts Falling with SPY Down 8%" I wrote, "Chart 3b, with a shorter time frame, shows the 4 week moving average rallied and "stabilized" and is currently heading lower. This suggests we may see another week or two of weakness before the rally resumes."

Today is certainly low enough for a tradable bottom and I have started buying again. The markets can still go lower. Buying at these sentiment levels during the last two bear markets over 50% required patience but during other declines, the rewards (profit taking opportunity) can much sooner, such as weeks or months. Just as I took profits after the last strong

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Kirk Lindstrom profile picture
Started my newsletter Explore Portfolio with $100,000 on 09/30/98.  By 12/31/20 that portfolio, with 60% stocks reached $1,270,794, a 12.1% APR.  Better performance with far less risk than 100% in S&P500 which only did 8.0% APR.  ----Awarded "Timer Digest 2017 Timer of the Year" and "Timer Digest 2013 Bond Timer of the Year" (both shared awards). ----More at http://kirklindstrom.com/Newsletter.html  ----------  2017 Market Timer of the Year  ------------------------------------------------------Starting as a summer intern in 1978, Kirk worked for 20 years as a scientist and engineer at Hewlett Packard's research and development department (R&D) designing solid state devices and components for optical communication. While he was at HP, Kirk invested ten to twenty percent per year of his salary. He made some mistakes early on (starting with paying high fees for "expert" advice that under performed) but soon he learned to invest his own money well enough to afford a life of "semi-retirement" to work for himself. In a way, since leaving HP in 1998, Kirk became his own "angel investor" using his his own money and investing success to finance his lifestyle in Los Altos, California to invest in a new career on the internet helping others do the same.  More at http://kirklindstrom.com/About.html

Analyst’s Disclosure: I am/we are long SPY, MSFT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (25)

Kirk Lindstrom profile picture
OK, I was able to get a good image of the headline "Silicon Valley stalwarts such as Intel, Google, Facebook at center stage of markets’ collapse"
and posted it here in the comments to today's market update at http://on.fb.me/1J96LcI
Kirk Lindstrom profile picture
OK, I was able to get a good image of the headline and posted it here in the comments to today's market update
Kirk Lindstrom profile picture
Today's headline in the San Jose Mercury News, paper for the Silicon Valley, was about the market "collapse." I'll have to save a copy for my records and perhaps for the next update of this article.

Next week I work on my newsletter so it might be two weeks until I can update the charts again here.
Illuminati Investments profile picture
I've been positioning myself for this pullback for awhile but find myself chickening out even though we're down over 10%.

Probably a sign that this might be a bottom, so did a little nibbling here but saving some dry powder in case we keep going down to 20%.
frank paxman profile picture
Illuminati -- Understandable position considering current sentiment. The technical gurus keep calling for lower levels, the fundamentalists say downside sentiment is overdone. It required great restraint on my part to not buy today. I decided that sentiment is so negative going into a three-day weekend, I'll wait to see what happens when the market opens on Tuesday.
Gio Graves profile picture
Yeah, the hesitation is a "back to back" 10% correction. Whats the point of a correction if we retrace those gains weeks later? We are rolling over and losing even more leaders this time around. 20% is in the cards, but we have probably hit a short term tradable bottom. We are very oversold here.
frank paxman profile picture
Gio -- That's an accurate and succinct assessment, for sure. Part of the hesitation is knowing that the market is quite the drama queen -- in this case oversold but no telling where the drama's next page will turn.
Kirk Lindstrom profile picture
The "Fear and Greed Index" just hit single digits... 9
See no blood yet either.
Kirk Lindstrom profile picture
There is blood... the debate is if it is a single flesh wound or the blood from the Third Battle of Changsha.
psumba profile picture
That's not blood in the streets ... it's ketchup! You need a sense of history to really know the difference.
Kirk Lindstrom profile picture
I'm curious why you would imply I have no sense of history?

I recall making a great deal of money using cash to buy after the 1987 crash, after the 2000-2002 bear market and again after the 2008-2009 bear market. In 2001 my newsletter portfolio actually had a positive return from buying the big declines and taking profits in the rallies.

The perma bears have said for decades we don't have blood in the street and it was a lousy time to buy and they've been wrong for decades. I hope you are not in that camp and were just trying to be clever.
psumba profile picture
I remember '73 & '74 too well. That was blood in the streets! If the Fed and US Gov't hadn't responded to 2008-9 with MASSIVE stimulative debt, the economy and market would have looked more like those years or worse.

The problem is that we can't use that trick again. Looking at the worldwide decline in manufacturing commodity prices (steel, aluminum, etc.), we appear to be entering a downturn without unwinding the debt still on the books from the last time.

I'm not an active trader, but a long-term investor. I got out before the top, and will re-enter around the bottom. That worked well in 2007-9. The money that I am investing is my "need to be safe money" that I am willing to sacrifice return in exchange for safety. While I won't be lighting my cigars with $100 bills, I want someone else's blood to be on the street.
Tiki Bar Capital profile picture
Excellent sentiment analysis. The one thing that's been odd is that we haven't seen the VIX hit higher levels. Investor complacency? Or perhaps the Street doesn't really believe this correction is a long term phenomenon.
NYer1 profile picture
Perhaps it shows this move lower has a long way to go..
I would start to be worried about short positions when I see VIX above 45-50
Kirk Lindstrom profile picture
Thanks for the kind words Tiki.

I know many who do well selling options (buying them is a losing proposition for most...) but......

I've not been a fan of using puts and calls because they can tie up your capital and it is possible you don't get the stocks or SPY ETF if it briefly trades below your strike price in a "flash crash" type event.

OTOH, I got some Intel shares for my IRA at $25.00 last year during the intraday panic selloff on 8/24/15. My guess is someone holding a put option to sell me Intel at $25.00 probably would not have exercised that option because that was very close to the low for the day and they would be smarter to hold for perhaps a lower price. BTW, I sold 2/3rds of those $25 Intel shares at $34.87 two months later....

I've sold options in the past and was not happy I had my capital tied up until expiration or I was hostage to the whim of the buyer to exercise at the worst time for me. Since I know many who do well selling options, my guess it is a matter of taste for what works best for different people.

Thanks again!
Kirk Lindstrom profile picture
Yes, I think you may be right. When examining the data last night after the close, I found two other periods during the past 16 years that got to this level and where buying then required "patience" of up to 2 years to redeem a reward. Those where the last two bear markets over 50%. It is why I wrote I had STARTED to put some back in. I ended the year with the highest cash/fixed position as a percentage for my newsletter and personal IRA trading accounts. I've STARTED to put some back in but I am in no big hurry... If I miss a "V-bottom" then what is in should make me happy enough.
Keith Investor profile picture
One important aspect missed in the discussion of SPY vs VOO or VTI is the ability to use options efficiently on SPY. Namely my strategy is to sell puts on SPY at my desired enter prices and get paid to do so.
I just deployed capital since "the word on the street" the financial world is ending! I love being contrarian, suits me fine. I appreciate the articles Mr. Kirk, thank you!
Kirk Lindstrom profile picture
Thanks for the thanks.
>> I appreciate the articles Mr. Kirk, thank you!

Here is a new way to look at the data "AAII Despondent Sentiment" from Schaeffer http://bit.ly/1TZcjH6

"The four-week moving average of neutral and bearish respondents hit 77%, which tied with the week of March 12, 2009 -- coinciding with the post-financial-crisis bottom, just before stocks went on a long-term run higher. Prior to that, you'd have to go back to February 2003 (also 77%), Prybal said. The all-time high of this moving average occurred in the late 1980s/early 1990s, right around 80%."

Quote from http://bit.ly/1TZclis
MisterJ profile picture
Finally! Three almost identical lows within a few months... enough of volatility.
Kirk Lindstrom profile picture
I agree! I try to remain calm and ask myself "what would Yoda say" during times like this.

"To your favor embrace volatility and use it. Herh herh herh."
Stock Reversals profile picture
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