Weekly Sentiment Review

The sentiment indicators I follow ended the week still deep in bearish territory. That means, despite the bounce we have seen in the markets, many investors are still non-believers and expect further declines soon. This is the kind of set-up that often makes for a good contrarian trade.

• The bull/bear spread on the Investor's Intelligence survey narrowed further (44% bulls, 30% bears)
• The bears on the AAII survey exceed bulls (45% vs. 29%) for 7 of last 8 weeks
• The put/call ratio last week averaged 1.0
• And, the Specialist short ratio remains near 40-year lows!

I would expect further short-covering to kick in if the SPX breaks above its overhead 50-day moving average (around 1180). But even if we get further consolidation in the markets, I still expect to see the market move higher as the buildup of bearish sentiment begins to unwind.