Sentiment indicators in the past week indicated that investors weren’t frightened by the recent big market drops. Perhaps it was because of the quick recovery leading to complacency despite some worrisome economic indicators signaling caution. In fact, short-term sentiment indicators have moved into “buy” and “near buy “categories. The CNN Fear/Greed is at 12, up from 8 a few days before. The Ned Davis Research short-term sentiment is close to a buy at 36.
However, intermediate sentiment indicators unlike the short-term indicators are still on the bearish side. The Investors Intelligence Bulls/Bears measuring market direction sentiment among market newsletter writers remains at 18% bears, unchanged from the previous week, which is bearish as a contrarian indicator. The bulls were at 51%, down from 61% three weeks before, but still in the negative territory. The NDR Crowd Sentiment is at 61, down from a more negative 69 two weeks ago but not anywhere close to an intermediate buy signal.
In other words, it seems the market bounce after the big drop lured investors into complacency despite worrisome economic indicators. Which tells us to remain cautious.