Hulbert: Sentiment a Good Sign for Contrarians

In an article for MarketWatch, columnist Mark Hulbert reports that “the typical stock-market timer remains extremely pessimistic. That, according to the contrarian’s logic, is a good sign.”

Hulbert explains that, from the contrarian point of view, continued skepticism in the market is a good thing. He notes at the time of the article (last December), the average recommended equity exposure as measured by the Hulbert Stock Newsletter Sentiment Index (HSNSI) stood at -15.6%, one of the lowest on record, meaning that “the average timer is allocating about a sixth of his equity trading portfolio to going short.” The last time the HSNSI was that low was February 2016, “which was the bottom of the correction (some say bear market) that began in May 2015.”

Hulbert points out that “contrarian analysis isn’t always right, needless to say. And even when it is, the insight it affords is only over the very short term.” Still, he concludes that as long as the market timing community remains as pessimistic as it is now, the sentiment winds will be blowing in the direction of higher prices.”