Snorting Bulls To Hold Momentum Card As Long As They Are Able To Save 3640s And 3580s On S&P 500

For the second week in a row, Investors Intelligence bulls were just under 65 percent. As elevated as this reading is, we are in a seasonally favorable period. If bulls are to take advantage of this, they would have to have buying power to continue to defend 3580s and 3640s on the S&P 500.

Investors Intelligence bulls continue to kick up dirt. This week, their count edged up one-tenth of a percentage point week-over-week to 64.7 percent, which is the highest since late January 2018. Bears were down five-tenths of a percentage point to 16.7 percent – a 12-week low. The bull-bear spread as a result rose to 48 percent, which too is the highest since late January 2018 (Chart 1).

Sentiment is elevated. Historically, bulls tend to hit 55 to 60 percent when equity indices hit new highs, which is the case now. This at the same time can reflect fully invested positions. Therein lies the rub.

This phenomenon is also evident among professional money managers, whose sentiment is captured by the NAAIM Exposure Index, which printed 106.4 last week, and 106.7 before that. (This week’s number will be out today.) The index represents the average exposure to US equities by the National Association of Active Investment Managers members. Readings north of 100 are rare. Going back to July 2006, there have been 22 100-plus readings, six of which occurred in the past four months.

For contrarian investors, risks are rising. The only thing is, we are in a seasonally favorable period. As a matter of fact, newsletter writers surveyed by Investors Intelligence – or, for that matter, professional money managers represented by NAAIM – could very well be positioning for this.

The question is if bulls can continue to keep up the pressure even though sentiment is already extended. It has happened in the past. Before peaking in late January 2018, Investors Intelligence bulls registered 60 percent or higher for 17 consecutive weeks. This week’s 60-plus reading is the second in a row, and third in last six.

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