The AAII Sentiment numbers were released today and showed a huge bullish jump of 9.3% to 57.6%. This is the highest bullish sentiment number since January 2007. And with Wednesday’s Investor Intelligence (II) Advisors Sentiment Survey at the highest levels since April of this year, and stocks at annual highs, it is time to go on the defensive for the short term.
Even though the sentiment numbers and our own internal indicators are very overbought, the charts of the major indices are still strong. Friday’s late rally pulled the intraday lows out of the zones identified as immediate support. Nevertheless, sentiment readings like those from AAII and II are clear warnings that something more serious may be coming.
I will be watching Europe very closely, the markets were giving a great amount of importance to the midterm elections and the Fed's new plan last two months, but now the market could face sovereign debt concerns again. With the high bullish sentiment number I mention above, what the bears need are some bad news and catalysis to trigger the selling.
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