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Sentiment Indicators Turning Negative as Investor Optimism Grows

We use investor sentiment as contrarian indicators on market direction since investors are usually wrong. During the past week the indicators were showing increasing investor optimism for the near term and the intermediate term. And that’s a warning signal for smart investors to watch out.

Short term sentiment indicators have now started to issue negative warning signals as investor complacency grows. The VXXB is now at a two-year low showing no sign that the market place is expecting future volatility. The CNN Fear Greed Index is trending higher in the greedy zone at 68.

Sentiment Indicators Turning Negative as Investor Optimism Grows
Sentiment Indicators Turning Negative as Investor Optimism Grows

Intermediate term sentiment has also moved to the negative side as contrarian indicators. The Smart Money/Dumb Money confidence gauge has moved to multi year lows showing that most of the marketplace is now getting bullish.    The Investors Intelligence Bulls/Bears poll of stock market newsletter writers shows bulls at 54% bulls and 19% bears. This makes the spread positive 35% which is optimistic and a negative. Plus 40% is a red alert warning sign, and we have been grinding our way toward that.

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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