Outlook 13 Feb '14

after market update: actual S&P +10.6  Markets are seriously overbought, and a U.S. disaster is preparing to hit?  Will the rally continue much longer?

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Overview:  Collective mood indicates the ending of a chapter, and a desperate fight to hold onto optimism.  Mood signals for the day indicate a light rally in the markets is possible.  However, markets are extremely overbought relative to daily social mood signals.  We've been watching for a high impact U.S. disaster or tragic event since we learned that the last big ice storm (Nika) was not enough to dissipate the disaster pressure showing up in collective mood.  Will the current ice storm have enough impact to get us out of this zone, or is there more?  We will know in a few days.

Near Term: While markets have rallied quite a bit in the past few days, social mood signals are still hovering in the 1740-1760 area (see Google trends chart below).  The mood signal should break out in the next few days to give us a heads up on trend for the near term. 

 

Long Term: Collective mood has been in a many month long process of topping.  Long term indicators are flashing "extreme caution," and are just below support, indicating a significant breakdown may be in progress.  The impact of human and natural disasters has been relatively low, but the trend is toward increasing impact.  Over time, this may wear on both mood and socioeconomic stability.

 

Today's Signals: +7.0 from Google Hot Trends, +0.2 from Themes in the News.  The projected stock market change for today is shown in the chart below.

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Mood signals from Google Hot Trends: On a daily basis, markets tend to follow social mood more often than not.  Overall, social mood trend changes usually precede market trend changes.

 

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Mood signals from themes in the news: News tends to follow the general trend of the market, but on a daily basis, can either lead or lag the movement of the market.    

 

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Note: data for U.S. social mood are scores in eight MoodCompass categories of Google Hot Trends, data for news are scores of top Google U.S. news stories.  Scores are converted to 4 inputs to the Market Mood Model.  The output is a conversion of mood data to estimated S&P point change.  Stock market data source: Google Finance.  This is posted as a public service, and to enhance exposure to our research.  It is not intended to be trading advice.