Hulbert references the “Investors Intelligence's sentiment survey of investment newsletters.” I’d rather use numbers that show how investors are betting rather than what they think. For that reason, I follow Rydex/Guggenheim funds that bet either long or short and calculate sentiment as follows: sentiment (%-bulls) = Bulls/(Bulls+Bears) based on $ invested in various long/short funds. On a 5-day basis let’s check recent highs:
20 Sept 2018 – 85% bulls
30 Apr 2019 – 87% bulls
15 July 2019 – 88% bulls
Clearly, the numbers are going in the wrong (bearish) direction. My sell signal (based on std deviation of sentiment during the dot.com crisis) is currently 92%-bulls. While we have sentiment getting too bullish, it’s not at a level that clearly signals a top yet.
In addition, sentiment usually peaks after a top as investors buy-the-dip. So, the indicator is likely to be late.
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