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Category: Sentiment Updates

Investor Sentiment Continues to Indicate Investors Should Reduce Exposure

We use investor sentiment as a contrarian indicator of where the market is headed since investors are usually wrong. As we pointed out in last week’s sentiment report investors were registering extreme caution and fear just before the equity markets’ recent big upward moves. Now this week, continuing the trend of a week ago, investor sentiment has gone from fearful to neutral, but moving toward resistance levels. That, as we said in our last report,  indicates smart investors should exercise caution by taking recent gains and reducing exposure.

The CNN short-term Fear/Greed was in the single digits three weeks ago, meaning investor sentiment was very fearful. This week it climbed up to 43, well into neutral sentiment territory but slowly moving toward resistance levels.  The Ned Davis Research short-term gauge also bounced quite a bit to a neutral 44 from very fearful single digits three weeks ago.

Intermediate-term sentiment also bounced quite a bit. NDR crowd sentiment moved up to a current neutral reading of 55. The Investor Intelligence Bulls/Bears poll of market newsletter writers jumped to 43% bulls while bears retreated to 26% from 34%. Three weeks ago the bulls/bears spread was a negative 5. The spread is now well into positive territory at a positive 17.

Investor Sentiment Continues to Indicate Investors Should Reduce Exposure
Investor Sentiment Continues to Indicate Investors Should Reduce Exposure

The extreme negative sentiment that created the recent bottom has now evaporated as stocks moved higher.  The market remains in a fragile state with many stocks recovering to their resistance levels of oversupply where sellers outnumber buyers, putting downward pressure on stock prices. Typically bottoms are created with a series of corrections. And we are not there yet. The fourth quarter down move is only one of many more that we expect before stocks reach the oversold levels that would trigger a durable, longer-term rally.

Investor Sentiment Suggests You May Want to Reduce Exposure

We use investor sentiment as a contrarian indicator of where the market is headed since investors are usually wrong.  So just before the recent big downward moves, investors were extremely fearful. And what do you know? The market moved up.  Now after the more recent moves up, investor short-term and intermediate-term sentiment has become more neutral, heading toward resistance levels. That indicates this may be a good time to take recent gains and reduce exposure.

The short-term CNN/Fear Greed moved from an oversold to an almost neutral 32.  Similarly, the Ned Davis Research short-term gauge moved up 8 to 41.  While not over bought they have both moved to a more mid-range at this point.

Investor Sentiment Suggests You May Want to Reduce Exposure
Investor Sentiment Suggests You May Want to Reduce Exposure

Intermediate-term sentiment also had some large upward moves. The NDR crowd sentiment moved to 50 from 41. Results from the Investors Intelligence poll of newsletter market writers shows bullish sentiment increased to 33% while the bears backed off to 27%.

The general market has had a large bounce, and sentiment has lifted with the market from oversold toward resistance levels.  Which is a logical spot to reduce exposure.

 

 

 

 

Investor Sentiment Suggests Market Bounce

Short-term investor sentiment has turned bullish.  The CNN Fear/Greed at 13means investors are very fearful. The Ned Davis Research short-term gauge is at 13. Both are very bullish signals from a contrarian point of view because investors are historically wrong about market direction.

Meanwhile, intermediate term sentiment also is looking more bullish. The NDR crowd sentiment gauge is at 41.  It was at 79 13 months ago.  Which means a lot of optimism has been wrung out of the market. That’s positive for the market from a contrarian point of view. Another positive: The Investors Intelligence Bulls/Bears poll of market writers is also getting more bullish from a contrarian point of view with bulls at 29% and bears at 34%.  That’s a 5% negative spread compared to a positive spread in the mid-40s a year ago. A negative spread historically has signaled a market bounce.

nvestor Sentiment Suggests Market Bounce
Investor Sentiment Suggests Market Bounce

A note of caution.  We continue to believe base on historical data that the market will be very volatile and highly risky for 2019.

Sentiment Indicators Show Equity Investors are Finally Getting Worried

We use investment sentiment as contrarian indicators because historically investors tend to be terrible at market timing, buying nearer tops and selling nearer bottoms.  So for practically all of 2018 as the markets cascaded down, investors remained unduly optimistic.  Now they are finally showing signs of fear, which could be part of a bottoming process.

Sentiment Indicators Show Equity Investors are Finally Getting Worried
Sentiment Indicators Show Equity Investors are Finally Getting Worried

Short-term investor sentiment this week showed growing fear. The CNN Fear/Greed index moved down to 4. The Ned Davis Research short-term sentiment indicator fell to 6.  Meanwhile, the NDR intermediate sentiment indicator also showed increased fear, moving from 58 to 41.

Sentiment Indicators Show Equity Investors are Finally Getting Worried
Sentiment Indicators Show Equity Investors are Finally Getting Worried

Investor Sentiment indicates Market is  Ready for Short-Term Bounce Intermediate-Term Sentiment Signals are Somewhat Positive

The most recent short-term sentiment gauges are indicating investors have turned very fearful about market conditions, with the CNN Fear/Greed index at 7 and the Ned Davis Research short-term indicator at 15. From a contrarian point of view this is very bullish for equity markets over the next four to six weeks since historically investors are usually wrong about market direction.

Investor Sentiment indicates Market is  Ready for Short-Term Bounce Intermediate-Term Sentiment Signals are Somewhat Positive

Investor Sentiment indicates Market is  Ready for Short-Term Bounce Intermediate-Term Sentiment Signals are Somewhat Positive
Investor Sentiment indicates Market is  Ready for Short-Term Bounce
Intermediate-Term Sentiment Signals are Somewhat Positive

 

 

 

 

 

 

 

 

Intermediate term indicators are leaning toward the bullish camp for the markets over the next six to nine months but they are not as outright positive as the short-term indicators.  The Investors Intelligence poll of sentiment of market newsletter writers has bearish sentiment unchanged at 21% and bullish sentiment retreating to 39%. Bearish sentiment for this poll needs to move into the upper 30s before I could feel more positive that  an intermediate bull market is ahead.  Meanwhile, the intermediate NDR moved down to 50, another positive signs for the markets. But, based on historical trends, it should  be at 40 to be really signaling an intermediate market bounce.

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