By John Del Vecchio and Brad Lamensdorf
The stock market continues to set records and bulls are raging.
Weekly market sentiment, courtesy of Investors Intelligence, shows bulls at 61.2% while bears are in hibernation at 16.5%
Bulls have topped 60% (a major warning sign) for nine consecutive weeks while bears hover near a 2 ½ year low.
Exuberant market sentiment by itself doesn’t mean the market will tank. It does mean risks are elevated. Now is not the time to be complacent. Any event could start to top the balance. Swiftly.
That will make it easier for bullish investors to switch their stance and for bears to become more active. In our own testing, once bears start to move off the lows, the returns disappear.
In fact, John’s own risk indicator yields returns of over 800% when the “all clear” is given compared to buy and hold returns of about 600%. Meanwhile, when the indicator is in the “red zone” the returns are -0.61% annualized.
We are not there yet. But investors should be on high alert.
Investors should be planning their hedges.
The Active Alts SentimenTrader Long / Short Strategy ended 2020 with a gain of 25.87% and a drawdown of 9.99%. The strategy has recently made adjustments to account for conditions in sentiment as well as over two dozen other proprietary indicators.