Friday, January 18, 2008

Negative Market Expectations at a High

If expectations drive stocks, then this graph should be of interest. As opposed to the MarketPsych Fear Index, this is a plot of the relative percent of negative expectations (subtracting out positive expectations, such as for market "recovery" or "rebound"). It looks like investors are expecting very bad news going forward. As you can see, investor expectations were relatively more positive in June and July 2007. The relative percentage is displayed on the left y-axis. A negative value actually indicates a positive balance of investor expectations.

As in our other graphs, this is a candlestick chart (in this case of the QQQQ - Nasdaq 100 proxy). The brown line is a 30-day exponential moving average of the balance of negative-positive expectations. It is derived from the results of a linguistic analysis of the financial press. Essentially, you are seeing the frequency of reported negative expectations attributed to investors.
Does this ugly graph mean it's a good time to invest? Well, we haven't crunched the numbers on this one yet, but we will soon....

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