We actively monitor several investor sentiment gauges that indicate how optimistic or pessimistic investors are about the stock market.
One of the sentiment indicators we monitor is the Citigroup Panic/Euphoria Model.
When it reaches an extreme, I comment on it here.
According to Citi, the panic/euphoria model is a gauge of investor sentiment. It identifies “Panic” and “Euphoria” levels which are statistically driven buy and sell signals for the broader market.
Historically, a reading below panic supports a better than 95% likelihood that stock prices will be higher one year later, while euphoria levels generate a better than 80% probability of stock prices being lower one year later.
The Panic/Euphoria Model continues to be elevated just under Euphoria.
Mike Shell
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