Bullish stock market sentiment is just one of several reasons to be cautious

U.S. stocks (^GSPC) are hovering at fresh records (^IXIC) just as investors prepare to celebrate the sixth anniversary of the bull market. Still there are plenty of reasons to be cautious, advises Brad Lamensdorf, CIO, of The Lamensdorf Market Timing Report. Yahoo Finance sat down with him to discuss the indicators he is most concerned about. Below is an excerpt of the interview.

The thesis on being short stocks

“The sentiment gauges have gotten to a very high level,” he notes, especially after the stock market had what he describes as a “fantastic fourth quarter bounce.” The market’s behavior following that bounce is what worries him. “Since then the statistics of the bounce have been very poor.”

Tobin’s Q Ratio – Trading at the second highest level in history

“Tobin’s Q is the replacement value of the stock market relative to the total value”, notes Lamensdorf and it is nearly impossible to massage. “Its a very hard number to manipulate, P/Es are very easy to manipulate as we have seen with IBM (IBM).”

Enterprise Value Relative to EBITDA – Second highest level since 2000 bubble

This stat is used by the smart money “which is basically a private equity type statistic,” he says which mainly is used when determining cash flow. “These are very, very lofty levels, expectation is very, very high in the market place.”

Seasonal Factors

As we move out of the winter into the spring and summer, Lamensdorf says investors should expect a drop in overall market liquidity. “The market gets less liquid. There was a lot of money pent up that needed to come into the markets at the beginning of the year,” which he believes has set stocks on a potentially unsustainable pedestal.

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