SENTIMENT NUMBERS

Overview

The holiday season is almost upon us and some newsletter editors use these two weeks to take a break from their publishing schedules. In addition, last week's trading again showed the primary broad indexes moving up to test overhead resistance and pullback, as they have done repeatedly over the past two months so other advisors felt there was no reason to change their opinions. Those factors resulted in a week with unchanged readings for all three sentiment categories, a somewhat rare but not unprecedented result.

Markets began this week with solid gains and we finally saw breakouts to new highs for the NASDAQ Composite and S&P 500. Technology shares are showing leadership in this latest move higher, the DJ industrials are lagging behind and still trade below 10,500. Our recent comments have noted a high level for the correction camp [short-term bears] and looked for upside index breakouts to shift some of their number into the bulls. That move may now occur and we could shortly see excess optimism around 60% that occurs around the time of a major top.

The bulls remained at 52.2%. That is their high since December 2007, when their number was retreating from 62.0% shown at that October's all-time market high. A year later at the first bear market lows the bulls had slipped to just 22.2%.

The bears were again at 16.7%. That is just above early December's 16.5% level. That was the fewest bears counted since June 2003, shortly after stocks rocketed up from the previous bear market lows in 2002 and early 2003. At the market highs in October 2007 the bears were 19.6%. A year later, the bears reached a fourteen year high at 54.4% when few were positive for equities.

The advisors classified as correction were again 31.1%. 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 and vice versa.

The difference between the bulls and bears was 35.5%, remaining at its highest level for the current market rally, a negative signal. The difference stood at 40% in Oct-07.

One reading that did change was the 10-week average ratio of the 'bulls' divided by the sum of the 'bulls & bears'. That figure eliminates the correction advisors. This week it is overbought territory at 70.8%. That is the highest level for that reading since 27-Jul-07 when it read 71.5%. That was about three months before the all-time market high in October 2007. Overall, this figure suggests some additional market gains may occur in the near term but markets may peak in the first quarter of 2010 and then correct from there.