What a difference a week makes.
It was just one week ago when I argued the stock market looked ready to rally.
The chart pattern of the S&P 500 looked bullish. And, investor sentiment – a contrary indicator – was overwhelmingly bearish.
So, it seemed to me the market needed to rally hard enough to shake the bears out of their short positions and coax the reluctant bulls to chase stocks higher before we’d see a significant decline.
Since then, the S&P 500 has rallied up to the 4300 level. And, in doing so, it seems that everyone has all of a sudden turned bullish.
It’s the most stunning shift in investor sentiment I can recall in nearly four decades of trading.
In its most recent survey, released yesterday, the American Association of Individual Investors (AAII) reported that the percentage of respondents expecting the market to rally over the next six months shot all the way up to 45%.
That’s the highest level in a year, and a sharp increase from the previous week’s reading of 29%.
Meanwhile, the percentage of respondents leaning bearish for the next six months dropped to 24%.
That’s the lowest number of bears in a year, and a steep decline from the previous reading of 37%.
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This dramatic shift in sentiment is happening just as the stock market is rallying to its highest level in 2023. It’s bumping into an obvious resistance level.
And, the Volatility Index (VIX) just generated a broad stock market sell signal.
Folks… this is NOT the time to be committing new money to the stock market.
This is a time to be cautious.
Trim some profits.
Raise the stop prices on current holdings.
And, for aggressive traders, maybe consider adding some short exposure.
It looks to me like the bear is gearing up to take another swipe at stock prices.
Stocks are likely to be lower a few weeks from now than where they are today.
Best regards and good trading,
Jeff Clark
READER MAILBAG
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