A week ago we noted the speed of the move from the March lows didn't allow for much reaction from the advisors. However, another week of markets moving higher was clearly enough for many newsletter editors to make a shift. We noted a sharp jump in advisor optimism and an even larger move down for the bears.

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%.

David Fuller's view I always feel that it is much more helpful to see statistical data in graphic form and recommend that you open the Advisors Sentiment PDF above and study the Bulls/Bears Difference in relation to the S&P 500 Index. Veteran subscribers will recall this service and graph which I have posted or discussed on 14 previous occasions.


I have long regarded the Advisors Sentiment indicator as an excellent tool for confirming climactic selling of a sufficient degree to mark important lows from which substantial recoveries occur. The bearish readings (requiring a majority of bullish advisors) are more frequent and less reliable, in my opinion, because advisors are inclined to be optimistic more often than not.

Of the previous three readings near the 40% level since the S&P's cyclical bull market commenced in March 2009, only one coincided with a significant pullback. Interestingly, none of them coincided with the late-February - early-March correction, presumably because advisors were beginning to back away from their bullish enthusiasm as the S&P's trend became more overextended.

Today's high bearish Advisors Sentiment reading coincides with my feeling that a reaction in the S&P 500 Index could easily occur in response to a short-term overbought condition, particularly if the prices of Brent and WTI crude oil continue to push higher. However, provided crude oil prices do not spike sharply higher, and I do not think they will without another significant supply disruption, I am only looking for a temporary pullback and partial mean reversion towards the rising 200-day MA.

If we do not get the pullback I anticipate, these are the likely reasons: 1) This remains a cyclical bull market, defined by the rising MA; 2) Monetary policy remains accommodative because short-term interest rates, although rising in some countries, are mostly below rates of CPI inflation; 3) QE2 from the Fed does not end until June; 4) The BoJ is now providing its own QE in response to Japan's earthquake / tsunami and Fukushima reactor disasters, prioritising the need for a yen; 5) US investors are reducing their overweight bond positions and switching to equities. (See also yesterday's Comment of the Day.)