Dumb Money Sentiment has reached 75% confidence level, while Smart Money confidence is currently at 29% confidence. The spread has widened to 46%. The last time the spread reached this kind of extreme was in May of 2008. The markets didn't fair to well after those extreme readings.
Back in January of 2010, the Dumb Money Sentiment reached 75%, while the Smart Money Confidence was at 38%; right before the markets declined roughly 9% in about 3 weeks due to concern over economic growth; so caution is warranted.
However, economic numbers have greatly improved since the reports at the beginning of the year and we are in a recovery as opposed to heading into a recession as was the case in May 2008. Any correction or decline in the markets as a result of extreme sentiment readings we are currently seeing will likely translate into an opportunity in undervalued areas of the markets.
