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Category: Sentiment Updates

Stock Market Sentiment Indicates Investors Should Remain Cautious

We view investor sentiment on the direction of the market as contrarian indicators since investors usually are wrong. The Indicators are basically unchanged over the last couple of weeks, continuing to indicate that stock market investors should remain cautious. The CNN Fear/Greed short-term indicator at 65 is slightly bullish, which is a negative from a contrarian point of view.

Stock Market Sentiment Indicates Investors Should Remain Cautious
Stock Market Sentiment Indicates Investors Should Remain Cautious

As for the intermediate terms outlook, the Investors- intelligence Bulls/Bears poll of sentiment on market direction among stock market newsletter writers also was indicating caution. The bulls came in at 53% and bears were at 21% bullish, a difference of 32%. That’s a negative from a contrarian point of view since these writers historically are wrong.

Stock Market Sentiment Indicates Investors Should Remain Cautious
Stock Market Sentiment Indicates Investors Should Remain Cautious

As we said last week, the market has had a large bounce from the December oversold levels. Sentiment, is not outrageously bullish, but it is somewhat overly bullish, which means investors should remain cautious.

Stock Market Sentiment Indicates Investors Should Be Cautious

Sentiment Indicators are basically unchanged from a week ago, continuing to indicate that stock market investors should remain cautious. The CNN Fear/Greed at 60 is slightly bullish, which is a negative from a contrarian point of view.   Ned Davis Research short-term sentiment at 50 is on the negative side but not as extremely negative as the week before when it was 72.

Intermediate term sentiment is also unchanged from last week. The Smart Money/ Dumb Money indicator from www.Sentimentrader.com remains bearish. The Investors Intelligence Bulls/Bears, a poll of sentiment of market newsletter writers, also indicted investors should remain cautious. The poll, basically unchanged from the week before, indicated 53% of the newsletter writers were bullish and 20% bearish. Another negative from a contrarian point of view.

Stock Market Sentiment Indicates Investors Should Be Cautious
Stock Market Sentiment Indicates Investors Should Be Cautious

The market has had a large bounce from the December oversold levels. Sentiment, is not outrageously bullish, but it is somewhat overly bullish, which means investors should remain cautious.

Another warning sign that there’s more downside risk than potential upside gain for investors is that bank stocks, which had a big bounce from the beginning of the year, have started to retreat in heavy volume.  The KRE ETF, which can be viewed as a proxy for the big banks’ shares, has been headed down in heavy volume.

More warning signs:  Stock analysts are downgrading their 2019 earnings estimates, while the OECD has been downgrading estimates for world growth.

Our conclusion: Stay cautious. There’s too much downside risk.

Investor Sentiment Stock Market Indicators Continue to Flash Warning Signals

This past week’s investor stock market sentiment indicators are signaling that investors continue to be increasingly optimistic about stock market direction. So from a contrarian point of because the average investor has proven to be historically wrong about market direction, we once again suggest you take defensive action and lighten portfolios.
Short-term stock market indicators remain in overbought territory. The CNN Fear/Greed Index, which was at 67 two weeks ago, moved up to 72 this week and even closer to extremely greedy levels which often precede stock market declines.   The Investors Intelligence Short-Term Composite Indicator at 80 was well into overbought levels. A reading over 70 means the market has become overbought.

Investor Sentiment Stock Market Indicators Continue to Flash Warning Signals
Investor Sentiment Stock Market Indicators Continue to Flash Warning Signals

Intermediate term indicators have also continued to move higher into overly optimistic territory. Investors intelligence Bulls/Bears poll of stock market writer sentiment came in at 53% bulls and 21% bears. That’s a positive spread of 32, up from 31 the week before. Historically the spread between bullish and bearish sentiment has proven to be very useful in terms of market timing. The spread last December was a negative 5, meaning bears outnumbered bulls, just before the market bounced. A positive spread of plus 40, or higher, meaning bulls greatly outnumber bears, is very worrisome from a contrarian point of view.

Investor Sentiment Stock Market Indicators Continue to Flash Warning Signals
Investor Sentiment Stock Market Indicators Continue to Flash Warning Signals. Chart provided by investors-intelligence.com

Another warning signal comes from SentimenTraders Smart Money Confidence and Dumb Money Confidence indices which allows investors to follow what good traders and bad traders are doing. The spread between smart and dumb traders continues to be unfavorable and bearish for the intermediate term.  The spread also tells us to expect high volatility for the year.

Investor Sentiment Stock Market Indicators Continue to Flash Warning Signals
Investor Sentiment Stock Market Indicators Continue to Flash Warning Signals

 

Investor Sentiment Indicators Continue to Warn Investors to Be Defensive

The Investor Intelligence Short-term Composite Indicator –- highly regarded by sophisticated market timers — was in overbought territory at 82 this week. That’s one of a number of sentiment warning signs this week that investors should remain defensive, and lighten portfolios. A reading over 70 means the general index has become overbought.

Investor Sentiment Indicators Continue to Warn Investors to Be Defensiv
Investor Sentiment Indicators Continue to Warn Investors to Be Defensive

Another warning signal comes from SentimenTraders’ Smart Money Confidence and Dumb Money Confidence indices which allow investors to follow what good traders and bad traders are doing. The spread between the smart and the dumb has turned unfavorable and bearish for the intermediate term. The spread also tells us to expect much more volatility throughout the year.

Investor Sentiment Indicators Continue to Warn Investors to Be Defensive
Investor Sentiment Indicators Continue to Warn Investors to Be Defensive

Meanwhile,  the Investors intelligence Bulls/Bears poll of market writer sentiment shows bullish sentiment continues much higher than bearish. That’s a negative from a contrarian point of view because these writers are usually wrong.  In fact the spread between the two moved up to a positive 31 this week from positive 29 the previous week. Historically the spread between bulls and bears has proven to be incredibly useful for market timing.  The spread last December was a negative 5, meaning bears outnumbered bulls,  just as the market bounced.

Investor Sentiment Indicators Continue to Warn Investors to Be Defensive
Investor Sentiment Indicators Continue to Warn Investors to Be Defensive

 

Investor Sentiment Indicators Continue to Warn Investors to Lighten Portfolios

SentimenTrader’s Smart Money Confidence and Dumb Money Confidence indices allow investors to follow what “good” market timers are doing with their money compared with what “bad” market timers are doing. What’s happening now? The chart below shows that the smart money is becoming less confident, while the dumb money is becoming more confident.  That’s a clear warning sign that investors should take defensive action. It is important to note that dumb-money confidence was very low and smart-money confidence in the market was very high just before the December bounce. That change in confidence in such a short period of time also illustrates how volatile and dangerous the markets have become.

Investor Sentiment Indicators Continue to Warn Investors to Lighten Portfolios
Investor Sentiment Indicators Continue to Warn Investors to Lighten Portfolios

Meanwhile, the CNN Fear/Greed short-term sentiment indicator climbed to 67 even further into greedy territory from 62 the week before, and from 13 a month ago. That’s a negative from a contrarian point of view. Intermediate term indicators have also become more negative. For instance,  the Investors intelligence Bulls/Bears poll of market writer sentiment came in at 21% bears and almost 50% bulls. That’s a positive spread of 29, compared to December when the spread was a negative 5 just as the market bounced and the bears outnumbered bulls.

Investor Sentiment Indicators Continue to Warn Investors to Lighten Portfolios
Investor Sentiment Indicators Continue to Warn Investors to Lighten Portfolios
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