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Sentiment Is Extremely Bullish: Reasons For Caution

|Includes: SPDR S&P 500 Trust ETF (SPY)

The markets are hovering around the flat line today as our politicians haggle and measure the size of their third legs. With an approval rating south of 10%, congress still appears to be unable to reach an agreement on the debt ceiling. While this may be the case, all I have heard all day is how strong the markets appear to be and how this is insanely bullish going forward. David Tepper was on CNBC today pumping the buy the market mentality. I think it is important to note that the last time David Tepper appeared on CNBC the markets popped, then collapsed. It was almost a perfect "Tepper Top".

With all this bullish sentiment and the markets apparent inability to go lower, I am more cautious than ever (at least until a deal is in place). If there is one thing I have learned in my years of trading and investing, it is the contrary view. When the masses and media are pumping the markets, a pull back is soon to be had. The same thing goes for the downside. When fear and panic grip the markets and the media is spreading it like butter, look for a market rally.

Even with this bickering in the House and Senate, the markets are near their all time highs. The markets are not pricing in any chance of a default. While I agree we will not default, I would not be surprised to see a sharp sell prior as things get darkest before dawn. In many ways the markets are what will ultimately force the hand of these annoying and ignorant politicians.

One this is for certain, I look forward to seeing how this script turns out.

Gareth Soloway