Chart Of The Day - The Sentiment Trap

Got 'em...

Sentiment Trap: just as seemingly everyone pivoted from bearish to bullish, like clockwork — the stock market kicked into correction mode.

• Not to over-anthropomorphize things, but it sure does look like a trap!

• When looking at sentiment indicators like the survey series below (which show the monthly averages for the AAII & II surveys), the strongest contrarian signals come when an indicator reaches and extreme (and then turns).

• In that respect, the speed and magnitude of the moves up in bullishness and down in bearishness by itself is extreme, but also the level that both of those indicators got to, and then to cap it off the fact both have turned the corner: collectively make for a clear contrarian bearish sentiment signal.

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