If you look at the chart and table below it reveals there are some serious warning signals even as many major indexes have been hitting new highs.

Here is the latest Investors Intelligence report along with the all-important sentiment chart and table:  The latest market strength caused renewed bullishness for a few advisors that had shifted to correction.  Readings continue to show the high levels of optimism signaling near fully invested stances that often occurs with market tops.  It doesn't mean an immediate sell off but the strong likelihood of lower market levels in two-to-three months' time. 

After a small gain the bulls were 53.6%, up from 52.6% a week ago and near the 55.2% high shown before that.  That latter reading was in danger territory above 55% but the last four weeks above 50% all point to increased risk.  The recent high equaled the bullish reading from May 2013.  That was followed by a market selloff through June.  The last higher number of bulls was 57.3% in April 2011.  The right-hand column of the table on the final page (see table below) shows a moving average of the bulls compared to the bulls + bears, eliminating the correction count.  It just exceeded 72% for the first time since late May 2011 and that was a trading top.  The last time the bulls exceeded 60% was late October 2007.

The bears were unchanged at 15.5%, a reading which is very similar to the 15.7% level from April 2011.  Both are historic lows.  The majority of the remaining bears cling to the belief that a major sell-off will occur whenever economic conditions permit the Fed to slow their bond buying program.  More than a few of them also express frustration. 

The spread between the bulls and bears increased to 38.1%.  That was up 1% from a week ago but below the 39.6% reading shown before that.  That was deep into negative territory and the highest difference for the year.  It was 36.4% at the mid-May market top.  A difference of 41.6% occurred in April 2011. Aug-13 ended with the spread at 13.4%, close to the 10% (or less) reading that allows for buying.  Readings are now pointing to a market top.  The bears haven't outnumbered the bulls (negative spread) since October 2011, after the correction from highs that April.

King World News note:  The bottom line here is that the reading above is a very troubling sign for the bulls.  It is waiving a red flag that investor sentiment is becoming very bullish. 

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© 2013 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

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Eric King

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rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

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