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Category: Sentiment Updates

Extremely Bullish Investor Sentiment on Stock Market Flashes Danger Signals

Extremely Bullish Investor Sentiment on Stock Market Flashes Danger Signals. We use investor sentiment as a contrarian indicator for stock market direction, and here’s why we are concerned.  The Investor Intelligence poll of more than 100 newsletter writers reports bullish sentiment climbed this week to 58.9% from the previous 57.7%. That’s the highest level of bullish sentiment since the end of the summer 2018 when bullish sentiment exceeded 60%. And that preceded an October selloff in which the S&P 500 experienced its worst month since September 2011. Historically bullish sentiment above 55% is a signal investors take defensive measures, such as tight stops and possibly selling some shares with big gains, says John Gray of Investors Intelligence. Bullish sentiment over 60% signals even more danger.

Extremely Bullish Investor Sentiment on Stock Market Flashes Danger Signals
Extremely Bullish Investor Sentiment on Stock Market Flashes Danger Signals

Meanwhile, bearish sentiment increased slightly to 17.8% from 17.3% two weeks before. The difference between bullish and bearish sentiment expanded the bull-bear spread to +41.1% compared with the previous +40.4% (see chart). A spread above 40% calls for defensive measures. Similar spreads last July preceded the August selloff.  Another note of caution:  The number of advisors projecting a correction dropped to 23.3% from 25.0%. “Readings below 25% are worrisome,” Gray also adds.

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Investor Sentiment Signaling Stock Market on Thin Ice

Investor Sentiment Signaling Stock Market on Thin Ice.  The SentimentTrader Smart Money/Dumb Monday Confidence Spread has hit  a ten-year low (see chart), signaling a growing gap between how smart and dumb investors view the future of the stock market..

Investor Sentiment Signaling Stock Market on Thin Ice
Investor Sentiment Signaling Stock Market on Thin Ice

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The  smart money is becoming increasingly pessimistic about stocks rallying in the weeks and months ahead while the dumb money is becoming  increasingly optimistic that they will.. That is a clear warning sign that stock investors should be very cautious. Another sign of caution comes from the equity put/call ratio (detrended), which looks at the ratio’s 10-day average relative to its 26-week average. The ratio is now at its lowest level since January 2018. Stocks tanked and the VIX spike the last time this ratio was this low (see  chart)..

Investor Sentiment Signaling Stock Market on Thin Ice
Investor Sentiment Signaling Stock Market on Thin Ice

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Investor Sentiment on Stock Market Remains in Caution Zone

Investor Sentiment on Stock Market Remains in Caution Zone.  We use investment sentiment as a contrarian indicator of market direction because investors are usually wrong. As a result, investors tend to buy on the high side and sell on the low side. Professionals use sentiment and other market indicators to determine when markets are overbought or oversold to maximize profits and protect assets. Investor sentiment indicators this past week remained in the caution zone, although slightly less bullish than the week before.

The Investor Intelligence poll of market newsletter writers shows the bulls retreating to 53.3% from 54.8% last week , and their previous 2019 high of  58.1% before that. Bullish sentiment above 50% indicates investors should remain cautious. Bearish sentiment was basically unchanged at 17.2% vs. 17.3% the previous week. Anything under 20% historically means it is not a good time for buying. The bull-bear spread (see chart) contracted to +36.1% from +38.0% a week ago. Spreads above 30% signal increasing danger the higher they go up.

Investor Sentiment on Stock Market Remains in Caution Zone
Investor Sentiment on Stock Market Remains in Caution Zone

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Investor Sentiment Continues to Warn Stock Market is in Danger Zone

Investor Sentiment Continues to Warn Stock Market is in Danger Zone.  We use investor sentiment as a contrarian indicator. Although bullish sentiment declined somewhat week over week, bullish sentiment remains in a danger zone.  As a result that means historically means investors should be taking defensive moves. This includes at the minimum tight stops and possibly selling some stocks with big gains. In other words, don’t be greedy, or be lulled into complacency by misleading record highs by the major market indexes such as the S&P 500 and the Nasdaq. The fact is those records are essentially reflecting performance by high flyers like Apple and Alphabet, which account for large percentages of the indexes’ performance. They are masking underlying market weakness as reflected in the fact that recently more stocks have declined than gone up.

Investor Sentiment Continues to Warn Stock Market is in Danger Zone
Investor Sentiment Continues to Warn Stock Market is in Danger Zone

Nevertheless, those major market index records continue to lull unsophisticated investors into a false sense of security. The  Investor Intelligence poll of more than 100 newsletter market writers, who historically are wrong,  shows bullish sentiment remains high at 54.8%. Although that’s a drop from the previous week’s 58.1%, bullish sentiment this high still means investors should be contemplating defensive moves. Meanwhile, bearish sentiment was basically unchanged, moving slightly higher  to 17.3% from 17.1%. The bull-bear spread narrowed to +37.5%, from +41.0% a week ago. Spreads above 30% signal increasing danger the higher they get.

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Investor Sentiment Rising Optimism Raising Red Flags

Investor Sentiment Rising Optimism Raising Red Flags. We use investor sentiment as contrarian indicators because the average investor usually is wrong about the stock market’s direction. So it is worrisome that Investor optimism was up again this past week. Apparently naïve investors continue to be lured into complacency by record and near-record highs of the major indexes, ignoring, or ignorant, of  the underlying market weakness exemplified by the fact that more stocks on the Nasdaq and NYSE once again went down than up.

So despite the markets’ underlying structural difficulties,  the Investor Intelligence survey of  market newsletter advisors shows bullish optimism increasing to 58.1% from 57.2%. This is the fourth week above 55%, signaling the  need for defensive measures including tight stops and selling some shares with large gains.  The latest reading exceeds the mid-July peak of 58% before the markets sold off to their August lows. Bearish sentiment was again very low, at 17,1%. For the seventh week the bull-bear spread expanded, ending at +41.0%, from +40.1% a week ago (see chart). This is the second bull-bear spread above 40%. It nearly equals the reading in mid-July before the August selloff. It is another clear call for defensive measures.

Investor Sentiment Rising Optimism Raising Red Flags
Investor Sentiment Rising Optimism Raising Red Flags

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