Sentiment Forecast Report
The Sentiment Forecast Report will be available through mid-2026. The report has the following sections:
- Mega Sentiment Driver (p1) - Describes an approximately 13-year sentiment cycle that creates the context for the dynamics described in the report.
- Market Resilience Indexes and their Physics-Based Drivers (Figure 1) - The Market Resilience Indexes (MRI) measure the price momentum acceleration of the stock market index. These physics-based drivers (Drivers) operate independently of economic and market factors but exert significant influence on investor behavior. The drivers indicate the expected path of the MRI when investors have neutral sentiment regarding economic and market conditions.
- Price Momentum (14-week RSI) - 10 Years (Figure 2) - Price Momentum is indicated by the 14-week RSI, a widely used technical indicator. Predicted Price Momentum is based on a mix of physics-based drivers that have explained actual price momentum from 1940 through 2023. Predicted Price Momentum indicates the likely path of actual Price Momentum during normal market conditions.
- Price Momentum (14-week RSI) - 1 Year (Figure 3) - This shows recent history and the excess price momentum, which is an indication of the strength of actual price moment in excess of the level expected because of the naturally occurring shifts in sentiment indicated by the Predicted Price Momentum
- Excess Micro (Short-term) Sentiment and News Narratives (Figure 4) - This table shows the excess Micro (short-term) price momentum acceleration and indicates the narratives that dominated the news each week.
The report shows three sets of indicators:
- Market Resilience Index® (MRI) series. Shown as solid lines in Figure 1, these indicators measure the structure and dynamics of price momentum in the index. The Micro MRI captures changes in the acceleration of price momentum and serves as an indicator of short-term shifts in investor sentiment. The Macro MRI reflects a smoothed long-term trend in price momentum and signals longer-term changes in sentiment. Unlike conventional momentum measures, the MRI series are designed to identify shifts in sentiment dynamics rather than simply overbought or oversold conditions. Together, they incorporate all components of investor behavior, including economic and market conditions as well as naturally occurring forces.
- Stock Market Price Momentum: 14-week Relative Strength Index (RSI). Shown as solid lines in Figures 2 and 3, the 14-week RSI is a widely used measure of price momentum in the investment industry. While RSI identifies the strength and persistence of recent price movements, it is not sufficiently responsive to identify market inflection points and does not clearly indicate longer-term sentiment trends. It therefore serves as a familiar momentum benchmark alongside the MRI series and the physics-based drivers.
- Physics-Based Sentiment Drivers. Shown as dashed lines, these drivers operate independently of current headlines and reflect only naturally occurring forces. They are designed to anticipate shifts in the MRI and broader price momentum. Because the drivers are based on objective physical forces, they can be forecast several months in advance. They do not predict specific events, but instead estimate how investors are likely to respond to future developments. Periods of elevated optimism amplify positive reactions to favorable news, while naturally occurring pessimism intensifies responses to negative developments.
The drivers forecast likely shifts in sentiment, while the MRI and RSI reflect actual shifts in sentiment. A positive divergence, where the price-based metrics rise above their drivers, indicates a supportive condition for the market. It suggests that investor optimism exceeds what would be expected based solely on naturally occurring shifts in sentiment.
During times of economic and market stress, naturally occurring shifts become the dominant influence on investor behavior as active traders become more affected by their emotional stance. During such periods, the MRI converge with and follow more closely their physics-based drivers.
Thus, early warning signals of potential market declines include:
- The Macro and Micro Drivers moving together in a negative trend during the forecast period.
- The MRI beginning to track their drivers more closely. Since drivers inevitably turn negative during their cycles, close alignment during an uptrend often foreshadows a downturn in the MRI and market prices.
Additional Notes
