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Citibank says: WE ARE DEEP INTO PANIC

Saturday, October 07, 2006 | 12:30 PM

in Investing | Markets | Psychology/Sentiment | Technical Analysis

Its pet peeve time again: Back in May 2005, we noted that Citibank's Panic/Euphoria Model has slid into panic mode, despite markets behaving not too poorly.

This week, the market saw the Dow finally climbing above its former January 2000 peak to an all time high; it rose 171 points, or 1.5%, to reach 11,850. The S&P 500 tacked on a 1%, while the Nasdaq rose 1.8%, to 2299. The Russell 2000 outperformed the other indexes, advancing 2%.

This can only mean one thing to the computers at Citi: WE ARE IN PANIC MODE. Proof is their Market Sentiment Panic/Euphoria Model:

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Chart courtesy of Barron's

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That's right. According to Citibank, we have slipped ever deeper into panic mode.

I'm not one to tell either Barron's or Citigroup how to do their business -- but this has now reached the point of absurdity. I would like to hear from someone (Tobias? Mike?) how on earth we are in a form of Panic sentiment right now.

Note: I am not saying this measure has no value; But I am suggesting that either the nomenclature or the scale (at right of graph) is somehow off.

Since its proprietary, we do not know what this black box measures; The only thing we are faiirly certain of is that it is not accurately measuring Sentiment . . .

Sources:
Common Sense
Inate
DNA

A Sparkling New High for the Dow
MICHAEL SANTOLI
THE TRADER
Barron's MONDAY, OCTOBER 9, 2006
http://online.barrons.com/article/SB116017686346985459.html

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Comments

Back in November 2005, The Big Picture had this to say about the the Panic/Euphoria Model:

"As is always the case with anything remotely resembling a black box, 'the particular methodology behind the model is proprietary and undisclosed.' However, the components of the model is disclosed, and includes:

"margin debt balances; daily Nasdaq volume as a percentage of NYSE volume; an average of Investors Intelligence and American Association of Individual Investors bullishness surveys; retail money-market fund balances; the ratio of put-option to call-option volume; the CRB commodity-futures index; gasoline prices; and the short-interest ratio between public investors and NYSE member firms."

Impossible to know how they weight each of these (and I'm quite sure a lot of form-fitting was done to get the desired historical results), but perhaps by looking at each of these components we might determine how this model remains in "panic" territory despite the price action of the market...

Posted by: NotBlue | Oct 7, 2006 2:18:00 PM

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