Investor Sentiment Check

A look at the weekly sentiment indicators shows that investor optimism has grown, but it is still not at levels normally associated with meaningful tops.

Here is a look at some of the indicators:

• The bull/bear spread in the Investor's Intelligence poll rose to +22 (52% bulls, 30% bears)
• The spread in the AAII poll rose to a still low +11 (49% bulls, 38% bears)
• Bulls on Market Vane rose to 72% (this is the only survey showing high bullishness)
• Rydex Nova/Ursa still low at 0.13
• Short interest ratios still at very high levels
• 10-day put/call ratios have only come down to neutral territory

On balance, most of the indicators simply point to the beginning of the removal of high levels of bearishness. But they are generally not flashing the same warning signals that we often see at market tops.

For that, we would need to see the spreads in the investor surveys rise to the +40 level. And we would need to see the put/call ratios fall to the lower end of their historical ranges. We are simply not there yet.

So while a pullback could come at any time, I don't think it will result in a protracted decline that is usually necessary to shake investor confidence. More likely, since the markets are now overbought be nearly every measure, it will be a correction that allows the market to consolidate before making another run at new highs into year-end.

At least...that's how I see it.