Sentiment Indicators Warning Stock Market Investors to be Very Defensive. We use investor sentiment on the stock market as contrarian indicators, and they are beginning to ring alarm bells. Take, for instance, the Investor Intelligence Bulls/Bears poll of more than 100 market newsletter writers. The percentage of bulls during the past week went up to 56.7%, from 55.2% a week ago, putting it clearly in the danger zone from a contrarian viewpoint. That is a new 2019 high and edging close to the 60% level which means extreme danger. Meanwhile bearish sentiment among this group was virtually unchanged at 18.1%.
For contrarians, low bearish sentiment means big risk. The spread between bulls and bears also was flashing warning signs, jumping to 38.4% from 37.1%, close to the late April spread of 38.6% just prior to a selloff. In other words, investors should be extremely cautious, and at these levels consider selling stocks with big gains.