Contrarian Warning - One Sentiment Measure Is At 1987 Levels Of Bullishness

Posted by on January 3, 2014 9:45 AM

Contrarian Warning - One Sentiment Measure Is At 1987 Levels Of Bullishness

Longtime option and sentiment trader Don Fishback passed these charts on to us -- what they show is various long-term investor/advisor sentiment surveys from Investor's Intelligence, AAII, Hulbert and Consensus.  The combined Bullish Sentiment by his measure is at the highest level since August 1987 (the market dropped 22% on 'Black Monday' in October 1987)  -- see the charts below:

1 11 222  555 444 333

666

(all via Don Fishback ODDS, http://www.donfishback.com)

The "All Average" chart at the bottom shows the highest overall level of bullishness since 1987 by this combined measure -- an 'upside breakout of bullish sentiment', if you will (in which a lack of bears is a factor, and could contribute to a potentially dangerous complacency).

Does this mean that the market is due for imminent crash?  Of course not -- but it is something to keep in mind given the 20%+ gains seen in the market in 2012 and 2013 without much in the way of 10%+ pullbacks. 

You will note that high levels of bullish sentiment were hit many times in the past without being a pre-cursor to a major broad market correction or crash -- many examples on that last chart above -- but it wasn't quite this high level of overall sentiment.

- Moby Waller

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