Averages completed a second consecutive positive week on Friday to achieve new 52-week highs. The advance was convincing enough to noticeably shift the advisors.
The bulls moved up to 49.5% after dipping to 47.2% the previous week. They have still not equaled their mid-August peak of 51.6% despite the higher levels for the markets. The next few weeks could see more earnings reports exceeding forecasts and that could drive the markets still higher. It may prove timely if increased optimism accompanies any additional market rally. We associate bulls at 55%-60% with market tops, so watch to see if those levels are achieved. They were last shown at the end of 2007.
The bears declined to 23.1% after reaching an eleven-week high at 26.4% a week ago. The bears are still above the 19.8% reading from mid-August. A reading below 20% typically occurs near a top. The mid-August reading was the fewest bears since the all-time market high of October 2007 when their number was 19.6%.
Advisors classified as correction rose to 27.4% from 26.4%. This group is mostly bullish but they expect an intervening market retreat before the 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 correction range for the last five weeks has been 28.9% to 25.8%.
The advisors show a major shift from the bear markets lows in October and November 2008 and March 2009. Those bottoms had the bulls at 22.4%, 23.1% and 26.4% respectively while the bears were 54.4%, 49.5%, and 47.2%. Note that the sentiment extreme occurred ahead of the final bottom.
The difference between the bulls and bears expanded to +26.4% after narrowing to +20.8% last week. That latter level had almost fallen out of the bearish zone. Sentiment readings remain bearish.
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