Sentiment Check

The sentiment indicators I follow are still not flashing the caution signals that one would expect when the market has made a series of new highs. And some continue to reflect downright skepticism toward this market. Here is a quick rundown:

• Advisor Surveys: The bull/bear spread in the Investor's Intelligence survey hit +22 last week (50% bulls, 28% bears). We usually see this one get to +40 before the market tops out. Moreover, just a few weeks ago it hit +9, which was the lowest level we have seen since March 2003, during the Iraq war. So there is quite of bit of room left for optimism to creep into this market. A similar argument could be made for the AAII statistics, which hit +24 last week, down from +40 in January.
• Put/call ratios: The CBOE put/call ratio is at 0.85, which is pretty much smack in neutral territory. It has room to get down to 0.70 before I would raise a red flag. The ISE Sentiment Index's 10-day is at 145, which is just off of its low of 138 in March. This indicator tracks retail sentiment better, and usually doesn't top out until it surprasses the 200-level.
• Short-interest: The Rydex Nova/Ursa ratio is still running at very low levels (0.17), as are many of the other Rydex ratios. The public short ratio (includes hedge funds) is still very high, as is the short interest in ETFs like the QQQs, SPYs, etc.

In sum, there continues to be a high degree of skepticism associated with this market. And high oil prices and rising interest rates only serve to keep the 'wall of worry' high. As such, although I think the short-term technical action in the market is bearish, I believe sentiment is such that any correction will be short-lived.

It is usually only when the market begins to make new highs and sentiment becomes overly bullish and complacent that the market often embarks on deeper, more pronounced corrections that take time to bring bearish sentiment back into the market. Such does not seem to be the case right now.