Sentiment, especially when it reaches extremes, can be a good contrary indicator. A new record high in bullish sentiment qualifies as an extreme. According to Steel Market Update:
Steel Market Update (SMU) Steel Buyers Sentiment Index rose +9 points since the middle of December and is now at +41 the highest level recorded since the index began in November 2008. The previous high for our Index was +40 which was recorded the first week of April 2011. One year ago SMU Steel Buyers Sentiment Index was 16 points lower at +25.
The last record was made in early April 2011. How did the steel ETF (SLX) and S&P 500 (SPY) fare in the next six months? SLX was down 48% and SPY lost 15%. Extreme bullish steel sentiment aligns with our January 10 comments relative to possibly cutting back on our long positions (IJR) and considering the short side (SH) of the market.