Ever have a minor annoyance kinda hang around, not go away, like a pebble in your shoe? A pet peeve that finally reaches the point where you have to say or do something?
That’s how I feel about the Citibank Panic/Euphoria model. Recall we first looked at his last May 2005. (Disclosure: I have Citibank Smith Barney accounts)
In its literature, Citi claims:
"Citigroup equity strategists’ proprietary measure of investor sentiment – the Panic/ Euphoria Ratio – is currently firmly in the “panic” zone, indicating weak sentiment. Historically, this has been a reliable contrarian indicator of stock market performance. They believe that recovering investor sentiment may drive continued global equity market gains over the coming six months."
Let’s see if you can identify what the problem might be:
The issue that continues to annoy me about this is the so called panic level of Market Sentiment.
You see, Panic is a momentary phenomenon, a product of fear and adrenaline. Its what kept your ancestors from getting consumed by sabre tooth tigers. It is also what makes people reliably sell at market bottoms.
Panic is transitory.
So please explain to me how, according to the chart above, we have been at Panic levels for about a year now?
For the above chart to have any value beyond being a marketing device (hey, it does run every week in Barron’s), it either needs to be relabled (i.e., Discomfort/Pleasure indicator), or the Panic "level" needs to be adjusted down to 0.6 or so.
That is all . . .
Global Markets Perspective
November/ December 2005
What Happened to All the Easy Trades? — Part II
Barron’s MONDAY, FEBRUARY 6, 2006