From Dynamic Hedge:

This study plots the "dumb money confidence," the "smart money confidence," and the spread between the two.

The theory is that smart money will be a buyer during market bottoms. Dumb money, on the other hand, will enter the market after most of the gains have already been realized and become bearish after most of the decline has already occurred. When the two groups diverge significantly from one another, it marks an extreme sentiment reading that should be taken as a contrary indicator.

I’ve highlighted the extreme optimism spread readings since the bull market began in 2009. As you can see, when the market was momentum-driven in 2010, the extreme optimism reading...

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More on sentiment:

Investor sentiment made an incredible change this week

Warning: Investors are becoming unbelievably complacent

Another big sign of a top in stocks: Newsletter writers are extremely bullish again