The Contrarian Aspect of Market Volatility

The biggest swings and the most extreme values in sentiment have been among big market moves or near big market bombs or peaks. When bull sentiment is more than one standard deviation below average, we tend to also see the S&P 500 outperform over the next six to 12 months. If optimism gets too high, it doesn't mean you're necessarily going to have a big drop into the markets, but your returns will be lower. So if you want to be contrarian, really look for the scenarios where either people really aren't very optimistic or they're very bearish - that's the sign you really want to consider buying stocks.

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