Weekly Sentiment Review

The market had a strong showing last week. The S&P 500 rose 3.1%, its biggest weekly gain since November 2004. The Nazz rose 3.5%, the biggest gain since August 2004. These are often the type of snapback rallies you get when there has been a buildup of negative sentiment in the market. That is the reason I have been highlighting the degree of pessimism I was seeing in the indicators. Here is where they stand currently:

• The bull/bear spread in the Investor's Intelligence survey is +18 (46% bulls, 29% bears)
• The bull/bear spread in the AAII survey bounced back to +10 (39% bulls, 29% bears)
• The Rydex Ursa/Nova ratio is still low at 0.21
• The NYSE reported this week that short interest reached record levels in May, supporting the low Specialist Short Ratios we have seen recently

These sentiment levels are still far from bullish. That means I expect continued gains in the market as the buildup of bearish bets continues to get unwound. When the sentiment indicators move all the way back to optimistic levels, then it will be time to move to the sidelines again. But don't chase stocks here. The market is short-term overbought right now, so I would expect some consolidating of the recent gains.

"Sell in May and go away?" Not this year. I think this month will be better characterized as "buy in May, and plan to stay."