Short-Term Sentiment Indicators on Stock Market Suggest Caution
Short-Term Sentiment Indicators on Stock Market Suggest Caution. We use investor sentiment as contrarian indicators on the direction of the stock market because historically the average investors is wrong. Intermediate sentiment indicators last week and again this week remained neutral. That means we can derive no guidance from them in terms of intermediate-term stock market direction. However, short-term indicators are telling us investors are trending toward the optimistic. And that’s a sign of caution for the short term. As you can see from the chart below the short-term CNN Fear/Greed Proxy is getting too high. Meanwhile the 10-day equity put/call ratio is now below .60 (see chart), which is a sign of too much short-term investor optimism.