The Nikkei index has been on a tear since the US Presidential Election, trading up +22% since the end of October 2020. As one would expect, that move also drove a significant amount of bullish sentiment. Not only did Nikkei futures close at a staggering 93% Bulls on 01/08, but sentiment increased 18% Bulls over the past four days. While this may lead some to think a sharp drop in price is near, the historical data tells us we should expect to see even higher prices in the near term – let’s look at the data.
Here are the inputs we used when evaluating the sentiment data:
- Nikkei sentiment = Above 90% Bulls
- Four-day sentiment change in Nikkei = Between 16-20% Bulls
Since 2006, there have only been seven other times where we had a similar sentiment setup. Those dates were: 03/14/06, 05/07/13, 05/08/13, 12/09/16, 01/08/18, 05/27/20, and 05/28/20. The table below shows some key stats around those dates. Looking at that data, it’s clear to see this is a solid setup for the Bulls. It’s worth noting the best returns were seen between 5-11 trading days after the trade signal (averaged between 3.0-4.1% return).