Market Sentiment Update

As the market ambles mostly sideways in its still-bullish long-term trends, risk has been rising consistently along the way.  Let’s not talk about valuation risk or the new administration’s execution risk; let’s talk about what may be the biggest risk for a correction, the sentiment situation.

From Sentimentrader, we find Dumb money aggregates not yet losing enthusiasm despite the sideways drift in the market and Smart money fading the bull to an extreme reading.

smart and dumb money

Pessimism is non-existent in the market right now.

extremes

extremes

Individual Investors continue to climb toward an extreme bullish reading.  My pet theory is that the Trump election brought the ‘everyman’ back into the shark-infested waters because it is safe to swim, play and frolic again.  So the story goes.  I actually think that much higher bullish readings may be needed to terminate the bull, but the lurch upward, post-election, may have at least started the process.

aaii

And then there is the Investors Intelligence data.  As of January 17, bullish newsletter writers have hit the 60% mark for the first time since just before the 2015 market top (that wasn’t, but it was a pretty bearish phase).  Newsletter bears are down to 17%, which is still a bit higher than the reading below 15% prior to the 2015 bear phase.  Therefore, the Bull/Bear ratio at 3.5 could pop a little more before the correction hits.  Click on the Thumb to review at Yardeni.com…

yardeni ii

Another note on Investors Intelligence; these are newsletter writers and they put a premium on being right with the market’s trend (in order to gain subscriptions).  Their status (on a contrarian basis) especially, is a condition to a market turning point but not a good timing tool.  So timing aside, a condition for a correction is coming into place here as well.

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