Investor Sentiment Indicators Continue to Warn Investors to Be Defensive. The Investor Intelligence Short-term Composite Indicator –- highly regarded by sophisticated market timers — was in overbought territory at 82 this week. That’s one of a number of sentiment warning signs this week that investors should remain defensive, and lighten portfolios. A reading over 70 means the general index has become overbought.
Another warning signal comes from SentimenTraders’ Smart Money Confidence and Dumb Money Confidence indices which allow investors to follow what good traders and bad traders are doing. The spread between the smart and the dumb has turned unfavorable and bearish for the intermediate term. The spread also tells us to expect much more volatility throughout the year.
Meanwhile, the Investors intelligence Bulls/Bears poll of market writer sentiment shows bullish sentiment continues much higher than bearish. That’s a negative from a contrarian point of view because these writers are usually wrong. In fact the spread between the two moved up to a positive 31 this week from positive 29 the previous week. Historically the spread between bulls and bears has proven to be incredibly useful for market timing. The spread last December was a negative 5, meaning bears outnumbered bulls, just as the market bounced.