All Of This Bullishness Is Bearish

Last Tuesday, the the S&P 500 sank by 1.5 per cent to close at 1,343.  It was the first time the S&P shed more than 0.7 per cent in one day all year.

But that wasn’t the beginning of some prolonged sell-off.  In fact, stocks quickly regained all those losses.  And today, the S&P is trading at around 1,370.

Many of the investment sentiment indicators point to highs in bullishess.  RBC’s Myles Zyblock thinks this means we’re due for a sell-off some time soon.  In his Spring 2012 North American Strategy Outlook, Zyblock points to RBC’s aggregate market sentiment indicator, which we have written about before:

The S&P 500 is up by 8.6% for the year and by almost 25% since last October’s low. Smaller-cap and higher- beta benchmarks, such as the Russell 2000 and the Nasdaq Composite, have fared even better. Yet, these impressive gains are not without potential costs. A broad basket of sentiment indicators collectively suggest that market psychology has become a little one sided (Exhibit 8); a position from which it is easy to imagine a share price pullback. 


Photo: RBC Capital Markets

For another read on elevated bullishness, check out Lazlo Birinyi’s Ticker Sense Blogger Sentiment Poll:


Photo: Lazlo Birinyi

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