Author: Brad Lamensdorf

Brad Lamensdorf, the founder and portfolio manager of Active Alts, is a principal and co-manager of the AdvisorShares Ranger Equity Bear ETF. He previously managed a long-short investment partnership from 1998-2005 under the name Tarpon Capital Management. Earlier in his career Mr. Lamensdorf was an equity trader/market strategist for the Bass Brothers’ trading arm. He managed a short only portfolio in addition to co-managing a $1bil hedging program. He also served as in-house market strategist for the entire internal and external network of Bass Brothers money managers.

Bulls Lathered Up to Historical Levels

By John Del Vecchio and Brad Lamensdorf

It’s the running of the bulls…

Retail investors are as bulled up as they have been in a decade. 

Take a look at this chart, courtesy of SentimenTrader.com: 

Bulls Lathered Up to Historical Levels
Bulls Lathered Up to Historical Levels

The black line is the S&P 500. It’s hitting highs.

The blue line is the ratio of levered bulls to bears using Rydex Funds. 

By and large, the folks that buy these funds are wrong. A lot. Not only are they wrong, they are wrong with leverage. That only makes the problem worse when things don’t go their way.

Longs on leverage are breaking out to 10-year highs. Compare that to just a few months ago in the depths of the COVID lows when bearishness was off the charts.

We have come a long way in a short time. 

Can the market push higher from here? Yes. 

A lot higher? Possibly.

The why should I care?

The masses just don’t make the right call at extremes. 

Markets change.

The stocks that drive the market change.

Human nature never changes. 

These investors will be caught flat footed. Then they will tend to dump their long positions at the same time. The chart will the swing the other way. Eventually, that will create a big opportunity to snap up stocks at deeply oversold levels.

We are nowhere near that level yet though.

The odds favor a butt kicking.

A butt kicking so big that gains from here will likely be lost. And, then some!

What can you do about it?

Give Brad a call. His “Master Key Indicator” is pointing to something big happening. This key unlocks the mysteries of the market and was created using Brad’s 30 years of experience working with billion-dollar managers and the research insights of SentimenTrader.com. SentimenTrader is a leading research firm with clients in 50 countries.

Only 11 spots are available. And, you will need to schedule your call within the next week to take advantage of this opportunity to speak with Brad about how the Master Key Indicator can position your portfolio to take advantage of this big opportunity that should reveal itself within the next two months.

Schedule your call here:

Major Market Excesses as We Head into the Holidays

By John Del Vecchio and Brad Lamensdorf

This week’s Chart of the Week is quite clever. 

It’s not something you will see in the mainstream financial media. It’s a beautiful representation  of extreme optimism or pessimism.

It’s courtesy of SentimenTrader.com.

It measures all of SentimenTrader’s indicators and analyzes whether the indicator is too optimistic or too pessimistic. Sentiment indicators. Technical indicators.

It’s the indicator of indicators.

Today it is flashing major warning signs.

Let’s take a look.

Major Market Excesses as We Head into the Holidays
Major Market Excesses as We Head into the Holidays

As the market has marched higher (black line on the top), the level of indicators reaching extreme optimism has exploded higher (red line). Meanwhile, pessimism has dropped like a rock (blue line).

Compare this to the lows in March and April when the situation was reversed. 

Risk is higher here. There’s too much leaning too far in one direction. It won’t take much to swing things the other way.

Buyer beware.

Speaking of SentimenTrader, the have teamed up with Active Alts to launch a long / short strategy the uses numerous indicators to better manage risk. Right now, the Exposure Gauge is signaling for a big things to come. Why not give Brad a call to discuss how this gauge can help better manage your investments?

Schedule a call here.

“Dumb” Money in Control

By John Del Vecchio and Brad Lamensdorf

Last week, we highlighted the TIR indicator as being very oversold and stretched to the downside. We suggested the odds favored a bounce.

Boy did we get one.

Stocks exploded higher. Especially low-quality stocks with a bit of “hair” on them. It was a tough week for short positions.

Even though these indicators have swung around a lot in recent months, major headwinds still exist for stock prices.

One headwind is that “dumb” money is in control.

Take a look…

“Dumb” Money in Control
“Dumb” Money in Control

The chart, compliments of SentimenTrader, shows the spread between Smart and Dumb money. It should be ovbvious…we want to follow the smart money. Those investors are in hiding. Smart money investors were very bullish at the lows in March and April. Since then they have retreated.

Now the dumb money is bullish.

What’s more is that dumb money is becoming more and more bullish. The trend is working toward the pre-pandemic levels.

Right before a major ass kicking.

The short-term bounce we expected has occurred. Intermediate-term though, there is a risk all of those gains and then some will be lost. 

Making big bets here on higher stock prices is placing a wager on the dumb money.

Did you know that Active Alts has teamed up with SentimenTrader to launch a long / short strategy? To learn more about how these indicators can guide your investments in these uncertain times, schedule a call with Brad here.

Bullishness Reaches Extreme Levels

By John Del Vecchio and Brad Lamensdorf

As Alexander Hamilton once said, “the masses are asses.” He probably wasn’t referring to the collective wisdom of investors, but it could easily apply to this group.

As a group, investors are terrible at projecting forward market returns. 

When investors are leaning too far bullish or bearish, it creates great risk / reward opportunities.

We love extremes.

Right now, we are at an extreme in bullishness. 

Newsletter sentiment is currently 60% bullish and 19% bearish. We are projecting that the bullish number could tick up another 2-3% next week as the 60% level was hit before the vaccine announcement earlier this week. 

These levels are rare.

A bullish level above 60% happens about 6.4% of the time going back 50 years. A spread of 40% happens 8.8% of the time. A combination of the two? Just 3.8%.

As we all know, we are not in normal times. It’s certainly not normal in terms of market sentiment.

When this situation occurs, market returns are just 0.4% three months out. Of course, that doesn’t mean they are flat. It could mean a major ass kicking and then as sentiment normalizes a market bounce occurs to claw back to even. 

Sentiment could be right this time. But, probably not. Markets change. Human nature stays the same. 

Looking back at recent history over the last 15 years, every major correction has been preceded by this big spread in bullish / bearish sentiment. 

Bullishness Reaches Extreme Levels
Bullishness Reaches Extreme Levels

Conclusion?

Hamilton was right. The masses are asses.

It’s also important to note that the average investor is overly bullish too. We do not put as much weight into this indicator as we do newsletter writers. But we are also well outside the norm.

Here’s some quick stats on where we are.

Bulls are 56%. That’s in the top decile of the last 33 years. It’s in the top 6 since the March, 2009 low. We should point out that March, 2009 was the most bearish period ever. Right before a huge bull market run.

The bull to bear spread is 31%. That’s in the top give in history. 

Both of these levels are the highest since January 2018.

Want to know more about how sentiment can impact your portfolio?

Why don’t you give Brad a call?  Brad’s Active Alts SentimenTrader Long/Short Strategy combines several decades of experience and research and actively positions the portfolio to take maximum advantage of market extremes. In both directions.

Book a call here.

Snapback Rally About to Hit a Wall

By John Del Vecchio and Brad Lamensdorf

Well, that was fast.

Last week, we highlighted the Investors Intelligence TIR Indicator. This measure of dozens of technical factors was pressed down to a level of three out of 100. The market was seriously oversold.

We expected a big bounce.

That bounce came and it came quickly. It was ferocious. 

Just as quickly as the market was extremely oversold, it has come back up and around and is now very overbought.

Take a look at the TIR here. It hit 81 on November 9, 2020.

Snapback Rally About to Hit a Wall
Snapback Rally About to Hit a Wall

Markets are a lot like physics. When energy is stored up, the reaction can be significant. That’s what we see when prices get very depressed. Like a rubber band pulled far in one direction, energy is stored up. When that energy is released the snapback is fast and hard.

Now that a big move has happened, there’s not as much energy stored up. This is highlighted in the chart below.

The percent of stocks in the S&P 500 that are above the 200-day moving average just hit 80. That’s the first time in 6 months that stocks have been this stretched to the upside. 

That percentage is threatening to break a several-year high. 

However, there is less energy stored up at these levels. 

Snapback Rally About to Hit a Wall
Snapback Rally About to Hit a Wall

This comes at a time when market sentiment is getting more and more greedy. The bulls just hit 60%. The bears stand at 19%. The spread of 41% is a danger zone.

Importantly, this survey was done before the Pfizer vaccine news. The spread could be even higher next week. 

Yet, risk has increased dramatically from just a few days ago. 

It’s time to pare back risk. Quickly.

How should you prepare for the future?

Why don’t you give Brad a call?  Brad’s Active Alts SentimenTrader Long/Short Strategy combines several decades of experience and research and actively positions the portfolio to take maximum advantage of market extremes. In both directions.

Book a call here.

 

 

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