Investor Sentiment Gauges Warning Stock Market is in Danger Zone
We use investment sentiment as a contrarian indicator of where the stock market is headed. This past week’s increased investor optimism means the stock market has become very risky. In fact, the Bulls/Bears poll of newsletter writers and editors entered the danger zone.
Bullish sentiment among these writers, who historically are wrong, moved up to 55.1%, from 53.8% a week ago, and 43.9% in late August. Bearish sentiment also was worrisome, moving down to 16.8%from 17.0% last week. The bull-bear spread (see chart) expanded to 38.3%, from 36.8% a week ago, well into the warning zone. Advisors in this poll projecting a correction continued down to 28.1%, from 29.2% last time. Correction readings below 30% are a concern. They indicate these editors are heavily invested.