SENTIMENT NUMBERS

Overview

Over the last week virtually all averages achieved further highs to show their best levels since mid-2008. Even number barriers continue to fall with the S&P 500 breaching 1,200 and the NASDAQ Composite 2,500, following the DJ Industrials break above 11,000. Those gains continue to slowly grow the number of bullish advisors with the latest readings almost equaling the optimism shown with the market highs at the start of the year.

The bulls moved up to 53.3% from 51.1% the week before. That just about equals the 53.4% reading from the first trading week of this year, when all of the averages were making new highs. Those levels were followed by quick 9% retreats over the next month with the bulls contracting sharply to 34.1%. That depressed level for the bulls confirmed a buying opportunity. The two readings above 53% showed the most bulls since late 2007 when their number was falling from a very negative reading of 62.0% shown at the October 2007 market high.

There were also fewer bears at 17.4%, down from 18.9% the prior two-weeks. That is the fewest bears since we counted them at 15.6% with the earlier 2010 market high. You would have to go all the way back to 1987 to see the same low level of advisor pessimism.

The advisors classified as correction fell to 29.3% from 30.0% last week. This group has held at a high level throughout this year, as a partial refuge for some skeptical editors who wish to avoid an outright bearish view. During this year, at the February low, we counted the highest correction reading in over 26-years. That goes back to late 1983, after stocks had their initial surge from the bear market lows of 1982. The correction group look for a near term market drop before trading returns to highs.

With the latest data we now classify the advisory sentiment as negative, similar to the outlook that started this year. Markets can still move higher and the bulls could approach 60% before final tops are in place. In the near-term, though we would expect some modest pull backs to consolidate the two-month gain. At present we do not project a correction approaching 10%.

The difference between the bulls and bears is now bearish at +35.9%, up from +32.3%. The spread was +37.5% for the first week of 2010 and +42.6% at the October 2007 all-time market high.