At SPWoodpecker, we’ve added a new tool to our homepage: the Sentiment Index (SI).
Updated daily after the market close, the SI appears as a dial showing — in a single number — the “mood” of the S&P 500, from extreme pessimism to full-blown euphoria.
The idea is simple: with a quick glance, you can tell if the wind is at your back or if turbulence lies ahead.
Click on the dial, and you’ll get a daily chart showing the joint evolution of the S&P 500 and the SI, along with a short comment interpreting the current situation.
Why Another Sentiment Index?
The SI takes inspiration from CNN’s Fear and Greed Index, which combines multiple metrics to gauge market confidence or fear.
We think it’s a great concept — but it’s not always easy to connect it to concrete investment decisions.
So we built our own indicator with two key differences:
- It only uses the price of the S&P 500. We believe the market already discounts all relevant information, so price alone is the most direct way to measure sentiment.
- It focuses on distinguishing uptrends from downtrends and showing the levels where a change from one to the other is most likely.
How It Works
Without going into formulas, the SI blends two complementary “views”:
- Stable component: based on moving averages, slower but precise.
- Sensitive component: based on volatility, noisier but quicker to spot changes.
We average the two, then normalize the result to a 0–100 scale. The goal isn’t to lead or lag — but to highlight when optimism or pessimism dominates.
What It’s For
The SI is not a trading system. It’s a tool for gauging whether we’re in calm waters or rough seas:
- A high SI usually means fewer corrections and a friendlier wind for bullish positions.
- A low SI means a greater chance of sharp drops or choppy rebounds.
This helps you adapt your exposure to your own risk tolerance — whether that means buying into deep pullbacks or waiting for a stronger recovery.
Real Examples
- Downtrend: In March 2025, the S&P fell from its February highs. Even though there was a rally in April, the SI signaled the downtrend was still in place, avoiding false entries until May, when the bullish regime began.
- Uptrend: The S&P 500 rises while the SI stays above 80. The exit threshold is clear — if the SI drops below that level, the trend may be running out of steam.
Historical Results
From 1980 to 2025, following the SI’s signals would have reduced the maximum drawdown from 57% to 21%, while slightly underperforming pure buy & hold.
When interest on idle capital is considered, returns come close — but with far less of a roller coaster ride.
Want to know each day if the market is optimistic or nervous?
Check the dial on SPWoodpecker’s homepage, and click for the full chart and daily commentary.
