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Sentiment Indicators Warning Stock Market is Still in Dangerous Territory

Sentiment Indicators Warning Stock Market is Still in Dangerous Territory.  We use investor sentiment as an important tool for indicating where the stock market is headed.  Despite the market’s recent tumble, indicators such as The SentimenTrader’s Smart Money/Dumb Money Confidence spread, are warning the stock market remains in overbought territory. In other words, this is not yet a time to buy. The SentimenTrader’s Confidence Spread has narrowed somewhat to  -0.31. This narrowing is from a recent extremely negative level of -0.61 (see chart), which forecast the downturn. However, the spread at -0.31 still is in negative territory as the smart money remains very cautious about intermediate prospects. In contrast, the dumb money remains overly optimistic, which is negative from a contrarian viewpoint because the dumb money historically is wrong.

Sentiment Indicators Warning Stock Market is Still in Dangerous Territory
Sentiment Indicators Warning Stock Market is Still in Dangerous Territory

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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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