Macro Sentiment Indicators: 5x better than S&P 500

Cindicator Team -

Over the last decade, passive investing through ETFs has become the norm. While regular savers piled into indices, Wall Street profited from exploiting any mispricing. That era is now gone.

In 2020, the pandemic, lockdowns and money printing caused an inflow of millions of new retail investors. Trading volumes exploded and nearly every asset has gone up in price. Now retail investors are the force that sets market trends.

The recent skyrocketing of Tesla’s share price or the legendary short squeeze of GME short sellers are just the most prominent examples of small trader dominance.

At Cindicator, we have come up with a unique way of measuring this popular sentiment, providing a real advantage in these new conditions.

How Macro Sentiment Indicators work

Cindicator has built a forecasting platform with over 163,000 market participants. Every day, they answer dozens of questions about the markets. They are motivated by monthly rewards, the competition, and just sheer fun.

Macro Sentiment Indicators measure the prevailing mood through six weekly questions. There are no right or wrong answers, but the algorithm assigns higher weightings to users who show high accuracy in other questions (such as those concerning asset prices).

Macro Sentiments show a very high correlation with real market movements. The accuracy is over 70% – this is the share of cases where a change in indicator has correctly predicted the weekly change in the S&P 500.

The simple strategy: +97.9% since inception in November 2019

Macro Sentiment Indicators offer a real advantage. Just look at the backtest of the most basic strategy for the S&P 500: with no leverage, it did five times better than passively holding the index.

Here is how the strategy works:

  • Take the simple average of all Macro Sentiment indicators for each week;
  • Check the change in the current week’s average, comparing it to the previous week’s average;
  • If the change is >0 (i.e. the average this week is higher than it was the previous week):
  • Buy the S&P 500 (could be any spot ETF or futures, as on the chart above) at Monday open (or Sunday for futures) and sell at Friday close;
  • If the change is <0:
  • Open a short position in the S&P 500 on Monday open and close it at Friday close;
  • Every week, deploy the entire capital that you have allocated for this strategy.

That is it.

This strategy doesn’t require any leverage, knowledge of options, or complicated risk management and position sizing. Of course, because of the lower risk, it is also not as profitable, and yet that means it could be used to boost returns for a larger long-term portfolio.

Try Macro Sentiment Indicators for free

Once you have started your free trial, you can ask any questions in the special Discord chat and see how other subscribers are using the indicators.