How do fish get caught? They open their mouth. How do investors get hosed? They follow the crowd.

This rather reliable rule of thumb (don’t follow the crowd) has been distorted by the Fed’s quantitative easing. Yes, prior to QE, investor sentiment used to be a rather reliable contrarian indicator.

Nowadays some sentiment indicators have to be taken with a grain of salt and subjected to additional scrutiny as the Fed has taken the edge off extreme readings and their contrarian implications.

Personally, I like to take a look at the composite sentiment picture made up of sentiment polls, money flows and my own personal headline assessment.

My headline assessment includes projections like last weekend’s Barron’s “Dow 16,000” cover. Here’s what Barron’s wrote:

“The stock market isn't the only thing that has set records this spring. Barron's semiannual Big Money poll of professional investors also is setting a record -- for bullishness, that is. In our latest survey, 74% of money managers identify themselves as bullish or very bullish about the prospects for U.S. stocks -- an all-time high for Big Money, going back more than 20 years. What's more, about a third of managers expect the Dow Jones industrials to scale the 16,000 level by the middle of next year.”

Barron’s publishes a magazine to make money and to make money you need to write about stuff people like to read. Bullish news does the trick right now. This suggests that a great many of investors are back into stocks, now hoping for higher prices and looking for ‘evidence’ confirming their bias.

That’s not good news for the bulls. In all fairness, it has to be said that Barron’s has gotten their forecasts right a few times recently.

In October 2012, Barron’s predicted new highs and the February 9, 2013 front cover shouted: “Stock Alert! Get ready for a record on the Dow,” and rubbed in the four words every investor likes to read. “We told you so,” and continued: “In October, we predicted the Dow would pass its 14,165 record by early this year. Now we’re just 1% short. Expect a breakthrough soon.”

But Barron’s had its ‘prime contrarian indicator moments,’ such as: “Is $5000/ounce the new target in gold’s run?” in August 2011 or its ueber bullish 2007 big money poll.

It has to be noted that despite bullish sentiment poll results earlier this year, the media was extremely bearish. The March 10, 2013 Profit Radar Report commented as follows on the lack of media enthusiasm:

“The Dow surpassed its 2007 high and set a new all-time high last week, but investors seem to embrace this rally only begrudgingly and the media is quick to point out the ‘elephant in the room’ – stocks are only up because of the Fed. Below are a few of last week’s headlines:

CNBC: Dow Breaks Record, But Party Unlikely To Last
Washington Post: Dow Hits Record High As Markets Are Undaunted By Tepid Economic Growth, Political Gridlock
The Atlantic: This Is America, Now: The Dow Hits A Record High With Household Income At A Decade Low
CNNMoney: Dow Record? Who Cares? Economy Still Stinks
Reuters: Dow Surges To New Closing High On Economy, Fed’s Help

We know this is a phony rally, but so does everyone else. We know this will probably end badly eventually, but so does everyone else. The market likes to fool as many as possible and it seems that overall further gains would befuddle the greater number. Excessive optimism was worked off by the February correction. Sentiment allows for further gains.”

From March 11 – April 11 the S&P 500 gained another 46 points. By April 11, the media started to embrace the idea of rising prices more fully:

Bloomberg: S&P 500 climbs to record on stimulus, earnings optimism
Reuters: Dow, S&P close at record highs in broad rally

In my admittedly unscientific estimation of headline sentiment, the media is still not as enthusiastic as it was in late 2010 or prior to the 2000 or 2007 highs.

Barron’s Big Money Poll results are nevertheless concerning and combined with weak seasonality, waning market breadth will probably lead to lower prices.

Dow 16,000 later on in 2013 doesn’t seem so far fetched though. Don’t get me wrong, now is not the time to be short (we went short at S&P 1,590), but I wouldn’t write off Dow 16,000 unless key support is broken.