Investor Sentiment Check

If you've heard all the market commentators saying how bullish investor sentiment has become, you're probably wondering how the current indicators are lined up versus previous market tops.

So let's take a look at some recent readings of the indicators I follow:

• The Investor's Intelligence and AAII surveys are showing bull/bear spreads of +26 and +24, respectively. Over the last few years, both of these surverys often show spreads in the low to mid 40s prior to market tops. So we are not there yet.
• The Rydex Nova/Ursa ratio is still toward the low end of its range at 0.158. That means there is still a ton of money in short-biased funds. This ratio hit 0.43 at the end of 2004.
• The 10-day ISEE is still low at 143. This indicator hit 179 in May, and was well over 200 in December 2005. So we still have plenty of room for options investors to become more bullish.

Until these indicators reach prior peak levels, I continue to believe that pullbacks may be sharp, but minor in terms of time. When everyone gets complacent with the pullbacks, and stops trying to call the top, then I will get more concerned.

As the economy reaches a soft landing, and inflation pressures subside, I expect growth stocks to get more multiple expansion and outperform the broader market.
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