Bullishness remains high

We continue to see a higher number of bulls in the stock market given the all-time highs. Many are chasing this market higher as they are likely worried about missing out on a stock market rally. We do not chase price as we know buying extended stocks is a recipe for disaster.

This does not automatically indicate a stock market top. Bullishness can last longer than your account can handle losses. Our goal is to stay on the trend for as long as possible and not to pick when the trend is over. Too many try and guess when the trend is over only churning their accounts lower. The current market condition highlights the importance of a sound risk management process. At the end of the day, we are only able to control our actions and not actions from anyone else including the stock market. We are in an uptrend with an extreme level of bullishness and will adjust accordingly.

Closing this week, the AAII Bull Index saw 49% of its respondents were bullish over the next 6 months. Bears dropped to 22.68%. It is obvious to most the extreme level of bullishness puts this stock market at risk for some sort of correction. What it does not mean is this current rally is over. The sentiment is an imperfect indicator and does not guarantee a top or bottom is in place. Simply, odds are in favor of some sort of correction that may take place in the short-term.

The Fed is buying $120 billion in securities a month and should provide a floor for the market to continue to push higher. Anything and everything are possible. Keeping an open mind and remaining disciplined with our approach allows us to avoid the noise Wall Street generates. Ignore the noise and focus on what matters.

Where this market heads next is anyone’s best guess. While we have a high level of bullishness and froth within the market there are some signs we could continue to push higher. Price is all that matters. We hope you have had a great week and close it out positively.