Indeed, sentiment data is beginning to send out some worrisome signals. For instance, the proprietary Panic/Euphoria Model, which captures investor activity rather than just feelings, via various metrics including margin debt, short interest and the ratio of price premiums in puts versus calls, to name a few, is beginning to edge up closer to euphoria territory (see Figure 3). Moreover, our shorter-term lead measure, the Cyclical Expectations model actually is even more ominous. Specifically, the CEM captures data from the bond market (such as the shape of the yield curve and credit spreads), the commodity market (the price of copper and oil) as well as the real economy (via weekly retail sales and freight transport) to collate the weekly changes in confidence about cyclical conditions. Importantly, the CEM leads weekly stock price trends by one-to-three weeks (see Figure 4) and its recent dip from elevated levels suggests that equity markets may be facing a more challenging environment next month.Click on charts to enlarge, courtesy of Citigroup Global Markets.
Still, thinking about the cyclical expectations ..., but the other side of Pacific may less promising?