Another Indicator Flashing Warning Signs for the Stock Market
Humphrey O'Neil wrote an incredible book called The Art of Contrary Thinking. Everyone who invests should read this book. This book written in 1954 delivers the message that you don't want to be thinking like the crowd. The crowd usually ends up being wrong. He has a famous saying from the book. "When everyone thinks alike everyone is usually wrong." History is littered with proof that he is right.
Well, we are seeing that same sign today. This article tells how optimistic investors are about the stock market. This quote is in market lingo. So, let me define some words for you. Bulls are positive about the market and bears are negative about the market. Sentiment is whether investors are positive or negative about the future of the market.
"In terms of sentiment, the difference between bulls and bears hasn't been this high in 30 years, according to the latest Investors Intelligence reading. Back then, stocks were bubbling their way toward the worst single-day sell-off in history when the Dow collapsed 22 percent on Oct. 19, 1987.
Bulls in this week's II survey totaled 63.5 percent against just 14.4 percent for bears. That's a spread of 49.1 points, well above the level the editors believe represents potential danger in the market.
A spread above 30 points signals "elevated risk" while 40 points calls for "defensive measures," according to II's formula."
The highest positive reading since 1987 right before the second greatest crash in history. The problem is that you see investors overly optimistic before bear markets or crashes. Today, we are at a 30-year high. That obviously is higher than before the financial crisis or the technology bubble.
In fact, we are off the charts when it comes to risk and the stock market. Be clear that the indicators are adding up and forecasting a gloomy future for investors. As I always say on the radio, know your risk level and be comfortable with it. Today, we could be heading towards something not so pleasant for the stock market and those who invest in it.