Hey Trader,
Retail investor sentiment is flashing a warning. Everyday individual traders haven’t held this much stock in nearly 25 years.
I’m sitting on 60% cash. I’m on the other side of that crowd on purpose.
I call it “opposite George.” It’s a nod to the Seinfeld episode where George does the opposite of his instincts.
In trading, that means reading retail investor sentiment in reverse. Sentiment is just how investors feel and how they’ve positioned their money.
Right now, retail is fully invested. Meanwhile, the pros are way behind the S&P 500.
That leaves retail holding this market up alone. There isn’t enough cash left out there to keep it up.
When the crowd is all in, the crowd’s money is already spent. If you’re standing right beside them, you’ll give back gains when it turns.
The signal works the other way too. When I hear heavy put buying and cash raising, I start looking for a bounce.
I’ve been reading the crowd this way for 38 years. Let me walk you through how I do it, so you’re not the last one buying at the top.
Let’s start with what the crowd is telling us right now.
What Retail Investor Sentiment Is Saying Right Now
Retail investor sentiment shows up in how people allocate. They keep adding to stocks despite bearish fundamentals and technicals.
If you need a reason to sell, that’s it.
Institutions aren’t the ones holding this market up. I check their rankings all the time. Their performance is hideous.
They’re way behind the S&P 500. Their rotations, positioning and allocations are all wrong.
They’re sitting in No Man’s Land while retail carries the load. The last bastion of this market is the zero DTE retail game, meaning options that expire the same day.
Even the index is misleading you. The S&P 500 reflects about three stocks right now, led by Apple and Microsoft.
Without those three, the index would be in free fall. At least half the stocks on my trading list are already in a bear market.
Why A Fully Invested Crowd Is Dangerous
There’s not enough cash out there to keep this market up. There won’t be either.
When retail investor sentiment gets this lopsided, nobody’s left to do the buying.
Money managers are making it worse. They’re cutting from 60 holdings down to 10.
The only names they’re keeping have RSI readings of 99. They’re liquidating until two or three stocks are left standing.
Don Kaufman says it best. You never crash from the high. You crash from the low.
Selling always accelerates at the bottom. Right now, we’re in the slow drip phase.
Once the liquidations start, they’ll be fast and furious. The margin calls are going to rip you.
A crowd that’s all in has no buyers left to rescue it.
Giving back gains is a faux pas in this business. Standing next to the crowd near a high sets you up to do exactly that.
When Retail Investor Sentiment Flips Me Back To Buying
Opposite George works in both directions. I’m listening for two shifts in retail investor sentiment:
- Lots of put buying. Puts are bets that a stock will fall.
- Lots of cash raising. Investors are pulling money out instead of piling in.
When retail investor sentiment turns that fearful, I take the other side of the trade. That’s when we’re probably going to bounce.
Everybody’s waiting for the bounce right now. Don’t wait for it.
Selling the crowd doesn’t mean you sit out completely. I’ve got nothing against buying the dip.
You just have to be out by the end of the day. The volatility is in play, and it’s there for the taking intraday.
If you worked for me and held that dip overnight, I’d fire you.
I bought some consumer staples yesterday while they were crashing. I made a pretty penny. Trades like that are few and far between, though.
How I’m Positioned Against The Crowd
I had about 17 positions on. I’m down to 11.
I sold three yesterday and liquidated three more this morning. One lost $3. The others were massive winners.
Pepsi, Constellation Brands and Unilever are all gone. I’m sitting on 60% cash.
My weekly chart backs up what retail investor sentiment is telling me. I’ve been doing this for 38 years, and the weekly is never wrong.
This setup looks exactly like the last one. Eventually the weekly creates separation and divergence, and down we go.
My guess is three to four weeks before it really materializes. Here’s what I’m doing while retail investor sentiment stays this stretched:
- Bailing on stocks near 52-week highs. I had about seven of them.
- Taking off longs and adding some shorts. The selling will pay the short side.
- Raising cash. That cash lets me buy opportunistic trades later.
- Keeping dip buys intraday. I’m out by the close every time.
I wouldn’t buy the S&P 500 here. I’d rather have cash ready for when the crowd finally panics.
When retail is all in, cash is your edge.
Retail investor sentiment will tell you when the crowd is done selling. You need cash and a plan in place when it does.
I never own stocks. I rent them.
Professor Jeffrey Bierman
Creator of the Genesis COG System
