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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.

Investor Sentiment is Flashing Warning Signs for Stock Market
Investor Sentiment is Flashing Warning Signs for Stock Market

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.

Investor Sentiment is Flashing Warning Signs for Stock Market
Investor Sentiment is Flashing Warning Signs for Stock Market

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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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