Investor Sentiment Check

The markets have erased their earlier losses, likely aided by the $2 drop in oil prices. Tech stocks are leading the way. Energy stocks are lagging. Bond yields are roughly flat at 4.67%.

I am hearing a lot of chatter among the investment community about whether or not we have made a significant top in the markets. They cite the overbought market, as well as glowing investor sentiment as reasons why the recent rally is over.

So let's take a look at the sentiment indicators and see how they stack up to previous periods when the market was topping:

• The bull/bear spread in the Investors Intelligence survey is +23%. This spread often gets into the uppers 30s or low 40s before the market tops. We are not there yet.
• The spread in the AAII survey is +22%. This one also gets well up into the 40s before the market usually tops. We still are not even at the highs for this year.
• The Public Short ratio is still near record highs (61%)
• The Rydex Nova/Ursa ratio is still low at .157; although it has been moving higher, it was at 0.22 back in January.
• The 10-day CBOE put/call ratio is down to 0.88; while it has been moving lower, it bottomed at 0.71 in January, still quite a way below current levels.
• The 10-day ISEE is still low at 146; it peaked at 179 in May and 192 in January.

So I could make an argument that the market may have peaked in the short-term, and maybe we do get a pullback. But I think any small pullback will bring the bears running to the forefront again, and help mitigate the damage of any such decline.