Be Careful – The “Dumb Money” is 71% Confident in Stocks Continuing to Rally

Be Careful – The “Dumb Money” is 71% Confident in Stocks Continuing to Rally

The “dumb money” is starting to work itself into a frenzy – Steve Sjuggerud writes in today’s DailyWealth:

Today, “the Dumb Money is 71% confident in a rally,” my friend Jason Goepfert wrote. Jason tracks investor sentiment through his website SentimenTrader.

The last time the Dumb Money was this optimistic was back in April, right before the Dow lost a quick 1,500 points in three months.

At this moment, a truckload of Jason’s indicators are flashing warning signs… “We now have more than 40% of our indicators with a bearish extreme,” Jason writes, “and 0% with a bullish one. This is only the third time since 2000 we’ve seen such a thing.”

But, rather than selling out of long positions, Sjuggerud recommends keeping an eye on your trailing stops – as he believes it’s possible Bernanke’s asset bubble could power through to the upside:

But here’s the thing: When investor sentiment peaks, it DOES NOT always mean the stock market will fall. Quite often, in a rip-roaring bull market (like this Bernanke Asset Bubble), you could see the market move sideways for three months instead of fall off a cliff.

Investors are optimistic right now. It’s a danger sign. The market might not move straight up over the next three months. It might go nowhere. It might fall. But ultimately, I think the Bernanke Asset Bubble has the ability to steamroll over this sentiment indicator.

We have the potential for a setback in the market. But I prefer to stay in stocks, with a close eye on my trailing stops.

You can read Sjuggerud’s full piece here.