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Sentiment Indicators Warning Stock Market Investors to be Very Defensive

We use investor sentiment on the stock market as contrarian indicators, and they are beginning to ring alarm bells.  Take, for instance, the Investor Intelligence Bulls/Bears poll of more than 100 market newsletter writers.  The percentage of bulls during the past week went up to 56.7%, from 55.2% a week ago, putting it clearly in the danger zone from a contrarian viewpoint. That is a new 2019 high and edging close to the 60% level which means extreme danger. Meanwhile bearish sentiment among this group was virtually unchanged at 18.1%. For contrarians, low bearish sentiment means big risk. The spread between bulls and bears also was flashing warning signs, jumping to 38.4% from 37.1%, close to the late April spread of 38.6% just prior to a selloff. In other words, investors should be extremely cautious, and at these levels consider selling stocks with big gains.

Sentiment Indicators Warning Stock Market Investors to be Very Defensive
Sentiment Indicators Warning Stock Market Investors to be Very Defensive

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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