Overview

Stocks lost ground in light trading the week before New Years Day and then rebounded smartly back to highs on the first session of 2010. The year-end publishing schedules for most of the editors meant they failed to comment on that latest action and it should take at least another week before we get a full picture of their current outlook. There were a few negative technical changes to end last year, including just over 500 stocks with buying climaxes and downturns for some of our short term indicator charts.

This weeks data shows a small dip for the bulls for the second week but higher readings for both the bears and correction groups.

The bulls fell to 48.3%, from 51.1% and 52.2% for the two prior weeks. That latter level was the most bulls since December 2007 when their number was retreating from 62.0% shown at that Octobers all-time market high. A year later at the first bear market lows the bulls had slipped to just 22.2%. We still have not achieved the high level of advisor optimism around 60% that precedes a major stock market top.

The bears were up to 16.9% from 15.6%, a low since their April 1987 reading at 14.5%. Six months later at the market highs that October the bears were 19.6%. A year later as averages were collapsing the bears reached a fourteen year high at 54.4%.

Advisors classified as correction were up to 34.8% from 33.3% and almost back to their early December level of 35.1%. 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. They are subject to quick changes and if markets surge from their currents levels, we could see some of the correction camp shift to a bullish stance and increase that group to dangerous levels.

The difference between the bulls and bears was 31.4%. That was down from 35.5% from the previous week and it remains at negative levels. The spread was 40% in October 2007.

The 10-week average of the bulls over the bears [eliminating the correction] was 72.6%. Readings at 70% and above show too much bullishness.