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The Short-Term Extreme Model (STEM) is a model consisting of several real-time sentiment measures including:

  • TICK

  • TRIN

  • Put/Call ratios

  • VIX

  • Several proprietary sentiment measures

We use 30-minute data to calculate the index, which allows us to capture intraday extremes which so often occur while for the most part avoiding early-morning inaccuracies. 

The model (blue line) will range between 0% (most bearish) and 100% (most bullish), although extremes below 20% or above 70% are very rarely reached. 

The green and red bands are 1.5 standard deviations from the one-year mean, so 80% of all readings should be contained within these bands. 

When we observe a reading approaching or exceeding one of the bands, it's time to pay attention - sentiment may be getting stretched a bit too far and about to snap in the other direction.

 

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