Thursday, September 4, 2014
Bull/Bear sentiment is not a strong signal
The II bull/bear sentiment ratio is over 4 times in favor of bulls. This is an extreme reading by any measure but a close look at these reading shows mixed evidence of what will be the impact on markets when we move to extremes. The charts are from yardeni.com.
The top chart shows the strong bull bias in the market. You have to go back to 1987 to get a higher reading; however, periods of market extreme usually suggest periods of consolidation in a longer-term bull market. The largest bear market declines were not associated with strong extreme bullish readings. The extreme herd story is nice to tell but may not be a good signal.