THE SMALL INVESTORS ARE MOSTLY BEARISH

That means in contrarian interpretation the market will make a rally in the following couple of weeks. Why? Because most of the investors, I mean housewives are buying the highs and selling the lows. They are always buying the optimism and selling the pessimism. Now we are in the middle of pessimism, which means the market is bargain and we have to own it.

The sentiment is a great indicator, but the point is that we have interpretat adverse. If most of investors are bullish we have to sell or being flat and if the vast majority of retail clients are bearish we have to buy the market.

Yesterday the Marketwatch issued by Hulbert Investment this chart below. Regarding the Nasdaq’s sentiment. That is obvious that the dominant sentiment now is bearish and since beginning of 2013 is at its lowest point. That means the bulls are at the lowest amount recently amongst them. If you look at retrospective back the strongest rallies occured always after the big sentiment low points. The wall of worry is stronger now than in the last 15 months and the investors are mostly in risk off mood.

• July 2013
• September 2013
• February 2014
• May 2014???

This interpretation is good for short or middle term trading. Obviously can’t predict the market for years, but if we are okay with few months we could use this as a contrarian indicator pretty effectively.

The BFM Assets Team.