There’s been a lot of talk lately about an upcoming stock market rally. And while some investor sentiment indicators are more bullish than others, one that’s often overlooked is Robert Shiller’s ‘Buy-on-Dips Confidence Index.’ Based on a monthly survey in which investors are asked to guess the market’s direction the day after a 3% market decline, the index has contrarian significance. In other words, when confidence is high that a bull market is coming (as indicated by a high reading on the index), it’s usually time to start selling. And when confidence is low (as indicated by a low reading on the index), it’s usually time to start buying.
So, what does the index say about the current market environment? Let’s take a look.
The current reading of the index is at 24.8, which falls into what I would consider the “neutral” zone. However, it’s important to note that the index has been trending higher over the past few months, which suggests that confidence is slowly but surely increasing that a rally is coming. Given this and other investor sentiment indicators that are pointing in the same direction, I believe there’s a good chance we could see a sizeable rally in the months ahead.
Of course, no indicator is perfect and there’s always the possibility that things could change quickly. So, as with any investment decision, it’s important to do your own research and not blindly follow any one indicator. But if you’re looking for another piece of the puzzle to support the case for an upcoming rally, Shiller’s Buy-on-Dips Confidence Index is definitely worth keeping an eye on.
The U.S. Buy-on-Dips Confidence Index created by Yale University’s Robert Shiller is based on a monthly survey in which investors are asked to guess the market’s direction the day after a 3% market decline. Analysis of the data indicates that the index has contrarian significance and is currently pointing to an upcoming stock market rally. This combined with other investor sentiment indicators suggests that we could see a sizeable rally in the months ahead. As always, it’s important to do your own research before making any investment decisions. But if you’re looking for another piece of evidence to support the case for an upcoming rally, Shiller’s Buy-on-Dips Confidence Index is definitely worth keeping an eye on.
