Investor Sentiment on Stock Market is No Longer Wildly Bullish
Investor Sentiment on Stock Market is No Longer Wildly Bullish. We use investor sentiment as contrarians indicator on stock market direction. So, a month ago in late March the Investor Intelligence poll of more than 100 newsletter writers showed bears clearly outnumbering bulls with a negative spread of -11.6%. Negative spreads as they widen historically are strong bullish signals for the market from a contrarian viewpoint. And sure, enough the market since then moved up sharply. But with that sharp upward move, bullish sentiment has gone up while bearish sentiment has gone down. So, from that -11.6% spread a month ago, the sentiment spread during this past week increased to +12.5% (see chart below). And that means we can derive far less certainty that the market is headed for another big upward move. In fact, the higher the spread, the more it is signaling market risk, particularly at +30% and higher. In fact, spreads over +40% and higher historically signal investors should take defensive measures.