Dumb Money---a reverse signal
These traders have proven themselves over history to be bad at market timing. They get very bullish after a market rally, and bearish after a market fall. By the time the majority of them catch on to a trend, it's too late - the trend is about to reverse. It tells us how confident we should be in selling the market.
Examples of some Dumb Money indicators include the equity-only put/call ratio, the flow into and out of the Rydex series of index mutual funds, and small speculators in equity index futures contracts.
Where are we now?
SentimenTrader defines it as "excessive optimism" when the number is over 0.7.
Currently, the number is 0.84.
What does it mean?
History suggests that when these traders are confident, we should be very, very worried that the market is about to decline.
When the Dumb Money is "Above Extreme(more than 0.7)", the annualized return is merely 3.0%.
Probably a BEAR is ahead of us in 2021.
What do you think?
Source: SentimenTrader
Editor: Tommy
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