Investor Sentiment is Flashing Warning Signs for Stock Market
Investor Sentiment is Flashing Warning Signs for Stock Market. We use investor sentiment as an important tool for indicting where the stock market is headed. During the past week major sentiment indicators were flashing warning signs for both the short term and intermediate term. The SentimenTrader’s Smart Money/Dumb Money Confidence Spread shows smart investors becoming far less confidence in the market for the intermediate term. The dumb money is increasingly optimistic. The spread between the two at -0.61 is at an extreme level. Historically that is very worrisome in terms of where the market is headed.
Meanwhile the short-term CNN Fear/Greed indicator (see below) is showing investors have become extremely greedy. As a result, that is a danger sign from a contrarian point of view because the average investor historically is wrong.