Investors are nearing a record in Risk-On behavior (by SentimenTrader)
We recently created a new Risk-On / Risk-Off Spotlight page which shows whether some core indicators are indicating that investors are in a risk-on or risk-off mode. As long as the aggregate measure is in risk-on mode, investors tend to be in a buy-the-dip mentality, which we saw again last week.
Like many other positive developments we've looked at over the last month or two, the biggest caveat is simply that the environment has been so positive for so long.
By the end of last week, nearly 100% of the indicators were in risk-on mode. That's so high that it has preceded weak returns.
A risk-on mentality has been so prevalent for such a prolonged period that the 50-day average of the aggregate indicator has climbed above 90.5%, meaning that an average day over the past 50 sessions has seen more than 90% of the indicators displaying risk-on behavior.
Our Backtest Engine shows us that when the 50-day average has been this high, future returns were poor.
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