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Intermediate-Term Stock Market Sentiment Indicators Flashing Warning Signals

We use sentiment Indicators as important guidance on stock market direction. Intermediate-term indicators are telling us to take defensive positions. The Investors Intelligence Bulls/Bears poll of newsletter writers indicates bullish sentiment greatly outnumbers bearish sentiment with a positive spread of +32. That’s a clear warning sign because these writers historically have been wrong about market direction. Meanwhile, the WWW.Sentimentrader.com Smart Money/Dumb Money Confidence Spread which measures the activity of competent vs. incompetent traders, is unfavorable at below -0.25.

Intermediate-Term Stock Market Sentiment Indicators Flashing Warning Signals
Intermediate-Term Stock Market Sentiment Indicators Flashing Warning Signals

Another note of caution comes from the S&P 500 VXX ETN, which we use as contrarian indicator. It is at the lowest level since early October when it missed forecasting the big fourth quarter market drop. In other words the VXX is showing the same level of complacency, suggestive of no expectation of future volatility, as it was before the big fourth downturn.

Intermediate-Term Stock Market Sentiment Indicators Flashing Warning Signals
Intermediate-Term Stock Market Sentiment Indicators Flashing Warning Signals

Meanwhile, the CNN Fear/Greed has backed off to a neutral 47. That means there’s no real way of reading it in terms of short-term market trends.


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.

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