Even before yesterday’s rally, sentiment was starting to get overly bullish. We also see this reflected in the 10-day moving average of the equity/put call ratio also.

AAII Bullish Percent (1990 to present)
bullish_percent
Source: Technimentals

One can disregard overly optimistic sentiment indicators if the tape and internals are strong, however when they weaken one needs to use the sentiment data as a cautionary signal.

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Quote of the Day:
“I invest based upon the supply and demand for stocks, and once there are no doubts left about the economic expansion, you are likely near extreme optimism. Extreme optimism means demand is largely satisfied and, almost by definition, the top is the point of maximum optimism.” -Ned Davis

Category: Finance

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