Sentiment towards stocks in the MIA investment universe reached its lowest point for at least 3 months this week as the FTSE 250 and AIM All share indices continued their New Year descent.
The MIA Sentiment Index fell by a further point in the last week following on from falls of 9 points and 6 points in the two previous weeks. Sentiment has now fallen by 16 points since the start of the year, the biggest fall since late November / early December when the Omicron variant hit the news. Sentiment towards MIA stocks has now been in negative territory for the last nine weeks, only briefly recovering to a neutral position before the latest fall, shown in the chart on the right below.
The MIA Sentiment Index currently stands at 36 indicating Fear as the emotion that is driving market movements in the stocks in the MIA investment universe.
Sentiment Indicators
The MIA Sentiment Index is driven by 3 underlying indicators:
Price Indicator: This indicator combines price strength, relative to 52 week highs and lows, and price momentum relative to the 130 day moving average.
Volume Indicator: This indicator measures the extent to which price movements are backed by the volume of trades.
Volatility Indicator: This indicator measures downside volatility relative to its 50 day moving average.
All three sentiment indicators are currently indicating that Fear is driving investor behaviour in MIA stocks:
Prices
Around 70% of stocks in the MIA investment universe are trading below their 130 day moving average and closer to their 52 week lows than their 52 week highs. In addition, about a third of stocks are trading at or near to their 52 week lows, with less than 10% trading at or near to their 52 week highs.
Trading Activity
Around 80% of MIA stocks have experienced net selling activity in the last 130 days as illustrated in the chart on the left below showing the relative strength of trading activity in MIA stocks.
The chart on the right below shows that downside volatility is above the 50 day moving average for approximately 60% of MIA stocks.
Pain And Opportunity
Sharp falls in sentiment and the associated downward movement in share prices can be unnerving and test the resolve of shareholders. It is always difficult to watch the value of your portfolio falling day after day as selling activity gathers momentum, but with that pain can come opportunity.
When falling sentiment affects entire sectors or markets, the shares of quality companies can become available at more attractive prices. With the MIA Sentiment Index now in the ‘Fear’ range some opportunities may be starting to present themselves, but there is lot further that the index could fall.
The point of maximum opportunity will come if and when the gauge reaches the ‘Extreme Fear’ range. That is the time to be prepared with a shortlist of researched companies and some dry powder to take advantage.
This article is intended for informational purposes only. It is not a recommendation to buy or sell shares or other investments. Always do your own research before buying or selling any investment or seek professional financial advice.