Over the last three months, we have seen stocks jump considerably. This jump came after investors had shifted sharply to the bearish camp during the spring.
Now that the Standard & Poor’s 500 Index has rallied over 12.5 percent off its low in June, investors have shifted back to the bullish camp.
But are investors getting too bullish? Two of my favorite sentiment indicators for the overall market suggest that investors might be reaching levels of optimism that warrant a more cautious stance toward the overall market.
Back in June when the market bottomed, the Investors Intelligence report showed a bullish percentage of 34 percent and a bearish percentage of 26.6 percent for a ratio of 1.27 bulls to every bear.
As of last week, the report shows 48.9 percent are bullish and 24.5 percent are bearish for a ratio of 2:1.
The second indicator that shows a dramatic shift is the 21-day moving average on the Chicago Board Options Exchange Equity Put/Call ratio. In June, the average hit 0.79, which was the highest reading in 10 months. As of last Friday, the ratio sits at 0.653.
While neither of these indicators is showing extreme levels of optimism, they are certainly reaching levels where some caution is warranted moving forward.
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