Weekly Sentiment Review

The market was able to tack on another 0.80% last week, and has now moved firmly into overbought territory. That doesn't mean that it can't go up from here, but just that the gains will be harder to come by until we have worked off this overbought condition. This could come in the form of a correction (read: decline) or just some sideways consolidation.

As far as the sentiment indicators, some have moved off of their extreme bearish readings while others haven't moved much. I would say, at this point the sentiment picture is moving toward neutral, but still has a ways to go before it moves overwhelmingly into the bullish camp. Here is how some of the indicators look:

• The bull/bear spread in the Investor's Intelligence survey widened to +21 (47% bulls, 26% bears)
• The bull/bear spread in the AAII survey widened to +21 (44% bulls, 23% bears)
• The Rydex Ursa/Nova ratio is still low at 0.23
• The Specialist Short Ratio is still near record low levels at 0.16

I still expect additional short covering on future rallies to bolster gains in the market, as investors/traders continue to try to fade (short) further strength. Short-sellers are having a banner year so far, and I doubt they will stand for watching those gains evaporate. Lots of good stocks are breaking out, so get your buy list ready and use upcoming pullbacks to increase your long exposure.