Sentiment Indicators Are Screaming Sell-Off

Includes: DIA, IWM, QQQ, SPY
by: Hedge Fund Live

As we have witnessed a solid run up from 1140 and a break to new highs in both the S&P 500 and NASDAQ Composite sentiment indicators are hitting levels we witnessed in January and April which resulted in dynamic sell-offs.

The latest indicator comes from Mark Hulbert who keeps a 30+ year sentiment indicator which tracks the mood of newsletter editors for equities, bonds, and gold.

As of yesterday the Hulbert Stock Newsletter Sentiment index (S&P 500) is at 60.8% which is about a 40% point jump from September 2010. 60.8% is just below Hulbert’s line in the sand of 65% whcih has coincided with numerous market tops. In April, his indicator topped at 65.5% and in January at 65.2%.

Hulbert’s NASDAQ indicator, which has a more volatile range due to the speculative nature of the index, is at 73%. In April 2010 Hulbert’s NASDAQ indicator topped out at 80%.

Hulbert’s index isn’t perfect, for instance in Oct. 2006 his index read 67.8%, but, shrugged off the outsized bullishness and continued to rally until Feb. 2007. All in all, the majority of indicators tell you we are overbought and if managers need to chase performance into year-end we should see a rally into year-end, but these are facts and according to Hulbert’s study we could very well see a sell-off.

Disclosure: No positions