Sentiment Suggests a Pullback

On Friday’s Kudlow & Company, I mentioned that we are overbought, and we should be expecting a  pullback over the next week or two. I said I expect it to be mild, and buyable.

On that same subject, JDC points us to Carl Swenlin’s chart, which suggests sentiment is way too Bullish:

click for larger chart
Sentiment__overbought

Chart Courtesy of Decision Point

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One of the fascinating things about the market is how so many different approaches an be used to reach the same conclusion. You can use a variety of different methodologies to determine am overbought conditions:

• The last few days of the advance has been on decreasing volume;
• on a time based system (See Raymond James’ Jeff Saut for his day count);
• Dick Arms uses the the Trin (or Arms) Index;
• Charles Nenner of Cycle Forecaster (and one of my partners) uses cycles;
• Kevin Lane of Technimentals suggests internal conditions have decayed predicting a short term pullback;
• and the aforementioned Sentiment factor.

All 6 of these methods suggest upcoming softness.

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