Bullish Sentiment Soars

Finally, bullish sentiment soared to an 11-month high, according to the AAII Sentiment Survey. And bearish sentiment fell to levels not seen since December 2010. Sentiment is usually considered a “contrarian indicator.” Since the survey is based on investors’ expectations for the next six months, it may merely be telling us that we shouldn’t expect a major breakout to new highs soon and, that until mid-year the indices will likely trade within the boundaries of 1,285 to 1,350.

Sluggish breakouts like last week’s are often followed by shallow pullbacks. Nevertheless, the breakout occurred, and so we should be buyers on any retreat as long as the pullback falls short of violating the respective 50-day moving averages of the major indices.