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.

Major Increase in Selling by Insiders is Warning to Stock Market Investors to Watch Out

Company insiders have superior knowledge of the direction of future company growth, and therefore they have advanced knowledge of where their companies’ stock price is headed. Recent insider selling is on pace for a two-decade high (see chart below). That should be ringing alarm bells for savvy investors who know heavy insider selling is often followed by big market tumbles.

Major Increase in Selling by Insiders is Warning to Stock Market Investors to Watch Out
Major Increase in Selling by Insiders is Warning to Stock Market Investors to Watch Out

Low Bearish Stock Market Sentiment Means Investors Should Remain Cautious

We use investor sentiment as a contrarian indicator of the direction of the stock market. And this week’s low bearish sentiment means investors should be cautious. The most recent Investor Intelligence Bears/Bulls poll of writers and editors of market newsletters reports bearish sentiment at a very low 17.2%, virtually unchanged from the previous report.  Bearish sentiment below 20% historically means the market has not bottomed for broad buying.

Low Bearish Stock Market Sentiment Means Investors Should Remain Cautious
Low Bearish Stock Market Sentiment Means Investors Should Remain Cautious

Meanwhile the difference between bullish and bearish sentiment narrowed to +30.4%, which was better than previous polling but still in the cautious zone (see chart). Bullish sentiment tumbled all the way down to 47.6%, from 55.3%, but given high market volatility and low bearish sentiment we believe caution remains the watchword.

Investor Sentiment Warning Stock Market is Entering Danger Zone

We use investor sentiment as historically reliable contrarian indicators of the stock market’s direction. The Investors Intelligence Bulls/Bears poll of newsletter writers moved slightly higher this week in the danger zone with 55.3% of the writers bullish, up from 55.1% a week ago, and 43.9% in late August. Bullish sentiment above 50% is worrisome, and bullish sentiment over 55% suggests investors start taking defensive measures, including selling shares with large gains. It is important to note that bullish sentiment was over 55% for the four weeks preceding last summer’s August selloff. Bearish sentiment at 17.1% this week also was a warning sign, matching the mid-July low bearish readings preceding the August selloff.

The spread between bullish and bearish sentiment was up slightly to +38.2% from 38.3% the previous week (see chart).  Both sentiment readings are deep within the caution zone, nearing the levels of over +40% in late July just prior to the August selloff. Our conclusion? Be very careful!

Investor Sentiment Warning Stock Market is Entering Danger Zone
Investor Sentiment Warning Stock Market is Entering Danger Zone

 

Chart provided by www.investors-intelligence.com.

Cash Poor

The latest AAII survey shows that individual investors in September reduced their cash cushion by quite a bit. They’re now holding only 14.6% of their portfolios in liquid instruments, among the lowest in 30 years.

Cash Poor
Cash Poor

They’re not the only ones. Looking at other market players, it’s a consistent theme. Among mutual fund managers, retail investors, Rydex mutual fund timers, the AAII folks, and pension funds, the average cash balance is ticking near all-time lows.

Cash Poor
Cash Poor

You’re Being Robbed of Trillions with Low Interest Rates, and Don’t Even Know It…

By John Del Vecchio

“This article originally appeared in The Rich Investor”

Central bankers are the biggest crooks on the face of the earth. John Gotti and Pablo Escobar are practically saints in comparison. Here’s the thing… Central bankers are keeping interest rates low. In many cases, they’re negative. This trend is expected to last for a generation.

A Lasting Scenario

Take a look at these charts:

You’re Being Robbed of Trillions with Low Interest Rates, and Don’t Even Know It…
You’re Being Robbed of Trillions with Low Interest Rates, and Don’t Even Know It…
You’re Being Robbed of Trillions with Low Interest Rates, and Don’t Even Know It…
You’re Being Robbed of Trillions with Low Interest Rates, and Don’t Even Know It…

Interest rates are expected to be negative in Europe and Japan for 20 more years.
Yup, you read that right. Twenty. More. Years. Those rates may not even bottom out until 2022 or 2023. Add in the time they’ve been artificially low and you’re talking the lifetime of an entire generation. It’s unprecedented in history.  Even worse, Europe and Japan have lousy demographics. It’s a total disaster. So, I’m skeptical that rates will even trend back up. We may even find ourselves bogged down by this scenario forever.  What makes these central bankers’ thieves? Well, they’re robbing trillions of dollars in wealth from the good folks like you who work hard and save. Trillions of dollars robbed, year after year. This has been going on for nearly a decade. The thing is, no one will ever go to jail for this grand heist. The bankers put on their fancy conferences, dine on Dover sole, sip champagne, and make Wall Street’s rich richer while you get caught holding the bag.

So, What Can You Do About It?

As an investor, you’ll have to chase some yield.

Though not all dividend yielding stocks are the same. Some yields are high for a reason — the underlying stock is junk.
That’s why in Hidden Profits I’m looking for stocks with fat yields and are good values with solid cash flows. This month, I’ve recommended one such stock. The company has survived numerous cyclical downturns. Its business is set up to weather economic storms. The yield is fat. Cash flow is strong. And the valuation makes it a good buy. There’s 50% or more upside in the stock at today’s prices. There’s a second recommendation in Hidden Profits, too. It’s a simple special situation play. You don’t need a calculator to figure out the value. It’s another 50% or more upside sitting out there, hidden in plain sight.
The company is well-managed and a dominant player in its three core markets. The guy at the helm is a business legend. He has huge incentives to unlock this obvious value. That makes it a great bet, here and now. That’s a change I’ve made in Hidden Profits. I’ll have two recommendations for you each month to provide more choice and, most important, more value. If you choose to do nothing, your savings will be eaten away. Your pocket picked. No jail time served for the multitrillion-dollar theft of central bankers. That’s the world we live in today.

Adapt or go broke. The choice is yours.

John Del Vecchio
John Del Vecchio is the author of the bestselling book, Rule of 72: Compound Your Money and Uncover Hidden Stock Profits and What’s Behind The Numbers: A Guide To Exposing Financial Chicanery And Avoiding Huge Losses In Your Portfolio.

As the in-house stock market guru and forensic accountant for Dent Research, John stood on the shoulders of the great David Tice, James O’Shaughnessy and Dr. Howard Schilit, and built a framework of algorithms and a multi-factor grading system that has made him one of the more successful short-sellers around.

John is also the executive editor of our Hidden Profits newsletter and our trading service Small Cap All-Stars.

He graduated Summa Cum Laude from Bryant College with a B.S. in Finance and was awarded Beta Gamma Sigma honors. He earned the right to use the Chartered Financial Analyst designation in September 2001.

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