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Investor Sentiment on Stock Market is No Longer Wildly Bullish

Investor Sentiment on Stock Market is No Longer Wildly Bullish.  We use investor sentiment as contrarians indicator on stock market direction.  So, a month ago in late March the Investor Intelligence poll of more than 100 newsletter writers showed  bears clearly outnumbering bulls  with a negative spread of -11.6%.  Negative spreads as they widen historically are strong bullish signals for the market from a contrarian viewpoint.  And sure, enough the market since then moved up sharply.  But with that sharp upward move,  bullish sentiment has gone up while bearish sentiment has gone down. So, from that -11.6% spread a month ago, the sentiment spread during this past week increased to +12.5% (see chart below).  And that means we can derive far less certainty that the market is headed for another big upward move.  In fact, the higher the spread, the more it is signaling market risk, particularly at +30% and higher. In fact, spreads over +40% and higher historically signal investors should take defensive measures.

Investor Sentiment on Stock Market is No Longer Wildly Bullish
Investor Sentiment on Stock Market is No Longer Wildly Bullish

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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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