A Bearish Barometer and Stinky Sentiment, Which Is Bullish

[TradeSmith Daily]( A Bearish Barometer and Stinky Sentiment, Which Is Bullish Last month, I wrote to you about the so-called [January Barometer](. In a nutshell, this indicator says: “As January goes, so goes the rest of the year.” This seasonal tendency for the stock market to either rise or fall in the first month of the year has an uncanny ability to predict stock returns for the rest of the year. And as you probably know by now, this year’s January Barometer results are not good news for stocks in 2022. But as a counterpoint, investor sentiment just reached such a bearish extreme last week that it’s actually bullish! RECOMMENDED LINK [Don’t Ignore This Message — The Stakes Are Too High]( The stock market has been very volatile lately… And the next crash will catch far too many investors unprepared. But the man who timed the COVID crash of 2020 says he knows the exact day of the next stock market crash. The stakes are too high for you to ignore his message… [Click here to learn the exact day of the next market crash](. Here are the details. First, the January Barometer results. Spoiler alert: They aren’t pretty. The S&P 500 (SPX) rallied 2.3% last week, but not enough to save the index from a 5.3% January decline. It was the worst monthly performance for SPX since the COVID crash in March 2020. It also made the “Bottom 5” list of worst January returns, going all the way back to 1980. Moving on, the Nasdaq 100 (NDX) performed even worse: down 8.75% last month. And going from bad to worse, the Russell 2000 (IWM) small-caps dropped 9.6% in January. In fact, IWM is the first notable index in our Markets dashboard to fall into the Red Zone, which it did last week. Not much good (other than energy), just bad and ugly performances last month, as you can see in the table above. Now let’s revisit SPX to see what a poor January showing has to say about the likely direction for stocks over the rest of this year. Here are the stats since 1980 from DataTrek Research: - The S&P 500 has been up in January 60% of the time (4.1% average gains), and during the years that it’s up, SPX has gone on to finish the year up 15.5% on average. - The S&P has been down in January 40% of the time (3.5% on average), and during the years that it’s down, SPX has ended with an increase of only 3.6% on average. [FEATURED: “I Want To Tell You the Exact Day of the Next Stock Market Crash”]( Bottom line is, when stocks drop in January (typically a positive month), watch out. We should all be prepared for both lower stock returns and higher volatility this year. And that has been the main theme of my recent TradeSmith Daily commentaries. There is also a positive in the current stock market outlook; namely, sentiment stinks right now. And from a contrarian point of view, that’s bullish. The chart below shows the latest reading from the American Association of Individual Investors (AAII) market sentiment survey. It’s a poll that’s been conducted weekly since 1987 to measure whether retail investors’ six-month outlook is bullish or bearish. You can see when retail investor sentiment drops to extremely bearish levels at the points circled in blue. Current sentiment, at the green arrow, just reached the lowest point since 2013 (fourth circle from the left). And it’s not far from the extreme low near the market bottom in the 2009 financial crisis. In fact, nearly every time an extreme low in retail investor sentiment was triggered, it marked a great buying opportunity for stocks. It may seem counterintuitive, but often the best time to buy stocks is when most investors are running scared. And we are there right now following the recent market correction. Of course, there is no guarantee this sentiment indicator will work as advertised this time around. But as Warren Buffett once said, it pays to “be greedy when others are fearful.” RECOMMENDED LINK [Why Biden Doesn’t Dare Overturn Trump’s Order 2222]( Just before leaving office, Trump approved Order 2222. The order has unleashed a “nano-power revolution” and left Big Power electric companies scrambling for cover. And one publicly traded company at the center of it is set to roll out its own “nano-power” plants to 100 million homes. Their stated goal? To become the world’s largest electric company. And they have the funding to do it. [Click here to find out how you can invest in the company at the heart of the “Nano-Power” hypertrend](. Fortunately, we don’t have to guess whether the market correction is over. We can simply let our trusty TradeSmith Market Health indicators guide us. At the end of last week, several important indexes on our Market Outlook page were in the Yellow Zone, which is a caution signal for those stocks. This included the Nasdaq 100 (NDX), the S&P 400 (MID), and the S&P 600 (SML). And one index, the Russell 2000 (IWM), fell into the Red Zone, an unhealthy state that tells you it’s time to exit this index. But what a difference a few days of upside price action can make. As of Wednesday, NDX, MID, and SML all have moved back into the Green Zone. However, IWM remains in the Red Zone and should be avoided for now. That’s a positive sign of improving stock market health, which could mean the recent correction is over. We shall see. But I’ll be watching these indicators closely for more improvement, and you should too. Enjoy your day, [Keith Kaplan]Keith Kaplan CEO, TradeSmith P.S. While the results of the January Barometer aren’t encouraging, and the threat of higher interest rates is taking the stock market on a wild ride… There may be a way for you to take part in an explosive new trend poised to be the first major disruptor in energy in 140 years. Hurry — [click here to see how you can get onboard early](. P.P.S. You’re invited to join our Product Education Lead, Marina Stroud, for her free Intermediate Bootcamp training session. In today’s webinar, we’ll review the Timing Lab within TradeSmith Opportunities. The Timing Relative Strength Index (RSI) Rebounds strategy combines our Timing Peaks & Valleys indicator with the RSI to identify high-probability trade opportunities. We will explore the criteria for this strategy and how to screen for Timing RSI Rebounds. We will also review the Timing Calendar and how to utilize the calendar’s filters. This lesson only applies to Timing by TradeSmith and Platinum members. You can, of course, join if you would like to learn more about our timing strategy. [Click here to register]( for today’s webinar. Our webinars begin every Thursday at 1 p.m. Eastern and include time at the end for a question-and-answer session. Best of TradeSmith The chart below represents the best-performing open positions over the last two years, as recommended by our software. [Download now on the Apple Store]( [Get It On Google Play]( [866.385.2076](tel:+866-385-2076) | support@tradesmith.com ©TradeSmith, LLC. All Rights Reserved. You may not reproduce, modify, copy, sell, publish, distribute, display or otherwise use any portion of the content without the prior written consent of TradeSmith. TradeSmith is not registered as an investment adviser and operates under the publishers’ exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith’s content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results. TradeSmith P.O. Box 3039 Spring Hill, FL 34611 [Terms of Use]( [Privacy Policy]( To unsubscribe or change your email preferences, please [click here](. [tradesmith logo]