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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.

Short-Term Sentiment Indicators on Stock Market Suggest Caution
Short-Term Sentiment Indicators on Stock Market Suggest Caution

 

Short-Term Sentiment Indicators on Stock Market Suggest Caution
Short-Term Sentiment Indicators on Stock Market Suggest Caution

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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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