State of the Market: Have the Bulls Gone Too Far? – T3 Live
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State of the Market: Have the Bulls Gone Too Far?

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With markets once again flirting with all-time highs, let's take a step back and look at various sentiment measures to see if the bulls have gone too far.

Yesterday, the Investors Intelligence survey of newsletter writers showed another big spike in bullish sentiment.

II reported that 54.4% of newsletter writers are now bullish, up from 52.5% last week.

This reading is very close to II's 55% “danger level.”

And as I've pointed out, the VIX implies that traders are pricing in almost no market movement.

Plus, the CBOE equity put-call ratio finished at just 0.57 yesterday, showing low demand for put options relative to calls.

So is everyone bullish, as the bears have insisted?

Not necessarily.

The American Assocation of Individual Investors' sentiment survey was just released, and it paints a more cautious picture.

The AAII survey shows that 35.4% of individual investors are bullish. This is below the 38.6% long-term average. It also represents a decline from last week, even though the market hit new all-time highs in 6 of the last 8 trading days!

Also, the ISE Sentiment Index' 10-day moving average is now at 101.5 (means 101.5 calls were bought for every 100 puts). This implies neutral sentiment.

Now if you combine all this data, and take into consideration how stretched the S&P 500 is from the 20-day moving average, it's safe to say that overall, traders are feeling confident in the bull's ability to keep going.

But to say that there is zero fear in this market… that's a little much.

I'd say we're at an 8/10 in terms of optimism (with 10/10 being full-on certainty that this bull ride will fly into the stratosphere).

Also keep in mind that sentiment has tended to turn on a dime as of late.

If we see even a 1% down day in the S&P, I fully expect sentiment to nosedive quickly as traders rush to the exits and scoop up put options, which if anything, tends to help form short-term bottoms.