Weekly Sentiment Review

The market was relatively flat last week. I was a little early in my call that I thought the market would take a breather, soon after reaching overbought levels. Sometimes strong markets get overbought and stay that way. (By overbought, I am referring to the technical indicators like stochastics and oscillators)

Still, the pause last week was healthy, and I think this week could unfold similarly. We have options expiration this week, which often leads to increased volatility also. I still think the market could have another push higher into quarter-end, but I do not expect it to extend much beyond that.

Typically rallies in a trading range market last in the 4-6 week range. We are roughly 4 weeks into this current rally, and will be around 6 weeks at quarter end. Sentiment has moved from the bearish levels I was highlighting back in late April/early May into more neutral territory. Here is where some of the indicators stand today:

• The bull/bear spread in the Investor's Intelligence survey has moved back to +30 (it bottomed at (+14)
• The bull/bear spread in the AAII survey has bounced to +26 (it bottomed at -25)
• The bulls on Market Vane are back at 68% (matching this year's high)

So the advisor surveys are back to reflecting fairly bullish sentiment, but the put/call ratios have not yet flashed the same levels of caution. I suspect it will take some more rallies to get the put/call ratios in similar bullish territory. At that point, with everyone back in the bullish camp, it will be time for us to raise some cash, get defensive, and wait for a pullback and another good buying opportunity. Such is life in a rangebound market. At least...that's how I see it.