Every spring I begin to get a little nervous about the stock market as my market seasonality clock starts thumping as the end of the Best Six Months (November-April) is nigh. This anxiety builds when the calendar rolls into April. If the market has been on binge as it has this year, as well as the last seven months – and the last two years for that matter this feeling of vertigo intensifies.
The recent exuberant sentiment readings from the venerable Investors Intelligence service are adding to my feelings of apprehension. In their Advisors Sentiment note this morning Mike Burke and John Gray observed that:
"The bulls moved up to 57.3% from 51.6% last week and their recent low at 50.6% just prior to that. The new increase in bullishness is not a good sign as it signals more funds moving off the sidelines and into stocks. This is the most bulls since mid-December when we counted 58.8%. At the end of last August’s market lows the bulls were as few as 29.4%, suggesting a time to buy. The latest reading suggests increased danger. At the October 2007 top the bulls were 62.0%.
"After a 7.4% drop the bears were down to 15.7%. They were 23.1% a week ago. The current negative reading below 20% is a low since mid-December 2009 when they were 15.6%. Low levels for the bears say there is not much cash left on the sidelines.
"The remaining advisors, classified as correction, rose to 27.0% from 25.3% last week. That category has been in a tight 5% range for the past 8-weeks, at fairly high levels. Some nervous bulls have shifted back and forth into this camp, avoiding outright negative projections.
"The difference between the bulls and bears jumped to +41.6%, a negative level. Last week it was +28.5% and contracting in the right direction for more stock gains. This latest reading is close to the +42.4% spread that accompanied the all-time market peak from October 2007. This is bearish."
We remain vigilant for our Seasonal Sell Signal and on increasingly high alert for a deeper correction.
http://blog.stocktradersalmanac.com/post/Frothy-Sentiment
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