5 reasons to use Macro Sentiment Indicators

5 reasons to use Macro Sentiment Indicators

Every trader has strong opinions on fundamental and technical analysis. Compared to these two divisive schools of thought, sentiment analysis is a new approach. Cindicator’s Macro Sentiment Indicators are probably the easiest way to add market sentiment into virtually any trading strategy. Subscribers successfully use this tool for weekly long/short trading of equity indices ETFs (~5x better than just holding the S&P 500), buying and selling options (about +100% on a good week), FX pairs and commodities. Let’s dig into why every trader should at least give it a try.

Since November 2019, Macro Sentiment Indicators are produced every Sunday based on questions to 163,000+ analysts on the Cindicator platform. The indicators themselves are simply data points and don’t predict anything without an interpretation.

The week-over-week change in indicators, however, shows a high predictive power for the weekly market trends.

  • For the S&P 500 and the Russell 2000 Index, the accuracy exceeds 70%. That’s the percentage of cases when the change in average across indicators correctly predicted whether the week would close higher or lower.
  • For commodities, the accuracy is also at about 70%. That’s the win-rate for WTI oil and gold futures weekly trends.
  • For FX pairs, the accuracy is even higher: it stands at 92% for the weekly EURUSD trend. While the magnitude of weekly changes in currency markets is far lower than in equities, skilful use of leverage can boost returns.

A community of traders always ready to help

Even if you can predict the weekly trend with 100%, that’s not enough. Trading is all about entering and exiting trades at the right times and at the right prices while managing risks and the bankroll.

That’s where the subscribers-only Discord community comes in handy. With over 1,100 members there is always someone to help with interpreting the indicators, refining a strategy, and staying up to speed with the market. And unlike some other communities, it’s not about memes and jokes. Traders are there to learn from each other and earn together.

And let’s face it, trading is lonely. Having a company of others to commiserate on losses and celebrate wins is important.

AI advantage

Community and data are not the only things that make Macro Sentiment Indicators unique. Since 2015, Cindicator has collected millions of forecasts for various financial events, including earnings releases, price levels, and more. This proprietary data set has opened up avenues for adding Machine Learning models to the mix. Based on analysts’ previous track record, Cindicator’s AI assigns different weights to their individual forecasts. This reduces noise and gives more emphasis to the views of high-quality analysts.

Sentiment beats fundamentals

Most importantly, sentiment analysis is what works in the market right now.

Over the past twelve months, central banks printed trillions of dollars, flooding the market with money and driving down interest rates. Meanwhile, tens of millions of retail traders jumped into active trading, thanks to remote work and massive layoffs. And a year into the pandemic, the future is even more unclear than it was last March. These factors have made fundamental equity analysis largely irrelevant. Instead, the prevailing mood is what drives this market.

That’s why hedge funds are scrambling to get all the data they can to gauge the retail sentiment. One of the best-known examples is Citadel, a $35 billion hedge fund buying order flow from Robinhood. Other brokers, including Charles Schwab, eTrade and TD Ameritrade, are also selling their data for hundreds of millions of dollars a year.

Bloomberg Terminal users use it

Some of Cindicator’s sentiment indicators are already available as an app on 300,000 Bloomberg Terminals across the world. These terminals are standard equipment for investment banks, hedge funds, institutional investors, and other market professionals. Now in just a few clicks, they can check sentiment on major stocks that are popular with the retail audience: Apple, Nvidia, Tesla, and more.

Not everybody can peer into option order flows, run their own AI, or even get access to a Bloomberg Terminal. Yet Macro Sentiment Indicators, coupled with a strong community of like-minded traders, can give any trader an edge in this unpredictable market environment.