Our Advisors Sentiment Survey, a contrarian indicator running since 1963 and widely adopted by investment professionals, showed an increase in bullishness this week.
There was a 3% plus jump in advisors with a bullish view to 49.5%. Bearish advisors counted out at 21.5%. Those figures equate to a bulls minus bears difference of +28%. That spread is high, but not yet indicative of a market top.
Typically, when the bull bear difference reaches the +40% region, we advise defensive measures. As illustrated on the chart, previous readings in that percentile were registered in April of this year, May 2010 and January 2010. On each of those three occasions the market went on to correct a couple of weeks later. The magnitude of those corrections on the SPDR S&P 500 (SPY) were -8%, -7% and -9%, respectively. A less reliable signal occurred in January of this year where the market pull-back took several weeks to materialize.
Bottom line – the market has not yet reached the optimism evident at medium-term market tops. New 2011 highs for the big board indexes are yet to be registered and we see the potential for such records to be notched before the end of the summer. This week's weakness is an opportunity to accumulate.
click to enlarge
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
