The huge reversal in market sentiment that began in the last week of April and developed momentum in the first half of May was one of the most dramatic on record.

That's according to Tim Hayes, chief global investment strategist at Ned Davis Research, who flagged a chart of the DSI (Daily Sentiment Index) Global Sentiment Index. (A sentiment index numerically represents how optimistic or pessimistic investors feel toward a particular market.) It shows how what he calls a "bipolar market" made the biggest 180-degree swivel from pessimism to optimism in the shortest space of time since the start of data compilation in 2002.

The composite index rose 62 percentage points in just seventeen days after crashing into "extreme pessimism mode" in the aftermath of the April 2 Liberation Day tariff announcement. As the tariff war rhetoric gradually softened and trade deals were mooted, the market's mood abruptly improved.

Hayes expects an "unpredictable" U.S. administration will keep uncertainty around global economics and trade at "unprecedented levels. And speculation should keep anxieties elevated and the market bipolar,herding upward or downward in response to the latest announcements."

Ned Davis Research also recorded the shortest period between triggering its Bear Watch and Rally Watch proprietary trading models that collate various market indicators to assess the likely length and magnitude of market moves. Having triggered a buy signal in the second week of April, it's now approaching a sell signal, but without having quite reached levels commensurate with a clear confirmation.

In the last week a backup in long-term bond yields has diluted some of the unbridled enthusiasm in U.S risk assets and Hayes is scrutinizing the market for signs of deteriorating breadth which would imply a correction is imminent. He said risk-on/risk-off indicators are flashing amber at present.

These yardsticks of sentiment inform the overall stance of Hayes toward asset allocation at present whereby they are underweight the U.S and the U.K. within their model international portfolios, but neutral stocks and bonds within U.S. portfolios. A year-end target for the S&P 500 SPX of 5550 explains why they recommend holding 10% in cash.

Ned Davis forecasts a steepening of the U.S. Treasury yield curve (wherein longer-term yields rise faster than short-term) and a weaker U.S. dollar, therefore it's no surprise to see their call on gold (GC00), a reciprocal of the dollar and a beneficiary of rising inflation expectations, is currently set to bullish.