A Reason to be "Extra-Attentive" to Stock Market Sentiment Measures

By Elliott Wave International

Extreme investor sentiment, whether bullish or bearish, is often a sign that a financial market is on the cusp of a turn.
Here's the reason: When almost everyone is bullish (or bearish), there's almost no one left to push the market higher (or lower).

 







Having said that, an extreme market sentiment can become even more extreme before a trend change occurs. So, an investor should not rely solely on sentiment measures when making portfolio decisions. In other words, sentiment measures should be put into context with technical indicators, the Elliott wave model and other factors which an Elliott wave expert may consider important.
Indeed, Elliott Wave International's Chief Market Analyst recently discussed the elevated optimism since the March stock market lows and also noted an important caveat.
Here's a chart and commentary from EWI's June 24 U.S. Short Term Update (a thrice weekly publication which provides near-term forecasts for major U.S. financial markets):