Investor Sentiment Warning Stock Market is Entering Danger Zone
Investor Sentiment Warning Stock Market is Entering Danger Zone. We use investor sentiment as historically reliable contrarian indicators of the stock market’s direction. The Investors Intelligence Bulls/Bears poll of newsletter writers moved slightly higher this week in the danger zone with 55.3% of the writers bullish. This is up from 55.1% a week ago, and 43.9% in late August. Bullish sentiment above 50% is worrisome. Bullish sentiment over 55% suggests investors start taking defensive measures, including selling shares with large gains. It is important to note that bullish sentiment was over 55% for the four weeks preceding last summer’s August selloff. Bearish sentiment at 17.1% this week also was a warning sign, matching the mid-July low bearish readings preceding the August selloff.
The spread between bullish and bearish sentiment was up slightly to +38.2% from 38.3% the previous week (see chart). Both sentiment readings are deep within the caution zone, nearing the levels of over +40% in late July just prior to the August selloff. Our conclusion? Be very careful!
Chart provided by www.investors-intelligence.com