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Stock Market Sentiment Indicates Investors Should Remain Cautious

We view investor sentiment on the direction of the market as contrarian indicators since investors usually are wrong. The Indicators are basically unchanged over the last couple of weeks, continuing to indicate that stock market investors should remain cautious. The CNN Fear/Greed short-term indicator at 65 is slightly bullish, which is a negative from a contrarian point of view.

Stock Market Sentiment Indicates Investors Should Remain Cautious
Stock Market Sentiment Indicates Investors Should Remain Cautious

As for the intermediate terms outlook, the Investors- intelligence Bulls/Bears poll of sentiment on market direction among stock market newsletter writers also was indicating caution. The bulls came in at 53% and bears were at 21% bullish, a difference of 32%. That’s a negative from a contrarian point of view since these writers historically are wrong.

Stock Market Sentiment Indicates Investors Should Remain Cautious
Stock Market Sentiment Indicates Investors Should Remain Cautious

As we said last week, the market has had a large bounce from the December oversold levels. Sentiment, is not outrageously bullish, but it is somewhat overly bullish, which means investors should remain cautious.


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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