Risk Reward Shows Market In The Toilet For 2015

Bradley Lamensdorf profile picture
Bradley Lamensdorf


  • We have consistently referred to four specific pillars that assist us in analyzing and prognosticating the market - sentiment, breadth, liquidity and valuation.
  • Currently all four areas are in the 'crapper', so to speak.
  • Here we delve into all four pillars in order to provide our readers with an in depth intermediate-term analysis of what to expect during the first half of 2015.


Ned Davis Research has created an intricate survey to gauge 2015
expectation of S&P 500 performance. 25% of managers polled predict
the market will be up 0-20% over the next 12 months. This suggests
complacency, as there are just too many bulls in the marketplace.

This indicator, created by Goldman Sachs, was recently highlighted on zerohedge.com. The sentiment gauge is currently 100% bullish, which is extremely negative from a contrarian’s point-of-view.

The next chart, created by SentimenTrader.com, averages the percentage of respondents who are bearish on stocks. They tracked
surveys going back at least 25 years recorded by Investor’s Intelligence, AAII, Market Vane and Consensus. The results show that in the 1,428 weeks of data available, only 27 weeks showed a figure of 25% or less. Clearly, this is a period of uncommon “un-bearishness.”

Such readings have historically been present several quarters ahead of
major corrections. Thus, market timing is often an exercise in patience. For instance, warning signs for the 2008 crash appeared as early as 2004-2005.

The Dumb Money indicator includes the equity-only put/call ratio, the flow in and out of the Rydex series of index mutual funds and small speculators in equity index futures contracts. “Dumb Money” sentiment is presently at a 5-year high, which is extremely negative.

This chart, produced by Chartcraft and calculated every Wednesday, polls newsletter writers for their current bullish or bearish prognostications. The indicator is currently positioned at a 41.5, which is extremely bearish. Since such a large percentage of the members polled are bullish, we view this as bearish due to its optimistic reading.

The infamous Investor’s Intelligence bulls/bulls+bears indicator includes data from Investor’s Intelligence-Chartcraft. Marty Zweig, a well-known market participant who is now deceased, tweaked the gauge. The current reading is at a 17-year high, which is a level not seen since the summer before the crash of 1987.

This article was written by

Bradley Lamensdorf profile picture
Brad Lamensdorf, a seasoned money manager started LMTR.com to take advantage multiple market opportunities and provide a resource to investors. He also writes is The Lamensdorf Market Timing Report, a newsletter designed to help investors improve performance via market timing by assessing the environment of the stock market using a variety of technical, fundamental and sentiment-oriented tools from powerful independent research firms. Many investors mechanically enter and depart the market without a true “game plan.” Studies have shown that retail investors, in particular, are very poor market timers, tending to invest at or near market peaks and sell at or near market lows. The newsletter is designed to provide risk parameters for both professional and retail investors around the short-term stock market environment, giving subscribers better insight about when to allocate assets into or out of the equity markets. Lamensdorf, a frequent guest commentator and analyst on major business networks including CNBC, CNN and Fox Business News. Lamensdorf, also has managed investment portfolios for the Hughes family and acted as principal of Tarpon Partners, managing a long/short fund that was up more than tripling the fund over six years. Earlier in his career, he was as an equity trader/market strategist for Taylor and Company, the Bass brothers’ trading arm, co-managing a short-only strategy in a derivative format with notional exposure. He also served as the in-house market timing strategist for the entire internal and external network of Bass managers.

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