Advisors Sentiment

Although the major averages pushed higher again last week there was very little activity amongst the newsletter writers. The numbers of bulls and corrections pulled back a little bit while the bears were up less than 1%.

The bulls counted 47.8%, down from 48.3% last week and 51.6% two-weeks prior to that. Those readings were the highest for the bulls since the end of 2007. Markets reached all-time record highs that October when the bulls were 62.0%. By the end of that year the averages were still within 5% of the peak but the bulls had retreated to the low 50%s. Sentiment most often shows movement away from its extremes prior to the overall market action.

The bears were up slightly to 24.4% from 23.6% the previous week. They numbered as few as 19.8% two weeks before that. The October 2007 high showed a similar bear level at 19.6%, with readings in the mid-20%s over the following couple of months.

Advisors classified as correction dipped to 27.8% from 28.1%. This group is mostly bullish but they expect an intervening market retreat before a rally begins. They look to buy on dips. Advisors often shift from bearish to correction before they are ready to make a bullish commitment.

The difference between the bulls and bears continues to narrow, now at 23.4%. That was down from 24.7%, 26.5% and 31.8% the previous three weeks. Readings above +20% are bearish. At the March 2009 lows the spread was -20.8%; a bullish signal that the markets had turnaround potential.

The recent advisory sentiment levels have negative implications for the future although they don't mean an immediate market drop. That do show markets are trading at the area of a potential top and that risk has increased. That is the opposite of the readings barely six months ago when we counted just 26.4% bulls and 47.2% bears, when the averages were achieving their early March lows. That showed risk had declined to make buying shares attractive.

Sentiment readings remain bearish, but they have improved over the last three weeks.