Bullishness Hits Disturbingly High Levels

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Mark Hulbert

Dec. 17, 2010, 12:01 a.m. EST

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"¹ Previous Column

Insiders are headed for the exits

First Take "º

The Countrywide albatross at B of A

By Mark Hulbert, MarketWatch

CHAPEL HILL, N.C. (MarketWatch) "” Sentiment conditions have worsened in recent weeks.

The Wall of Worry that existed as recently as earlier this month has now largely disintegrated "” and given way to the veritable Slope of Hope on which market declines typically thrive.

Consider the average recommended equity exposure among a subset of short-term stock market timers, who focus on NASDAQ stocks (as measured by the Hulbert NASDAQ Newsletter Sentiment Index, or HNNSI). This is a useful sentiment measure on which to focus, since the NASDAQ market is one in which sentiment plays a particularly large role (remember the Internet bubble?)

/quotes/comstock/10w!i:dji/delayed DJIA 11,499, +41.78, +0.36%

The HNNSI currently stands at 73.3%, which is disturbingly high. The only other occasions this year when this sentiment benchmark got any higher were early November and late April/early May. Both occasions turned out to accompany stock market highs "” and in the earlier case came immediately before the infamous Flash Crash and severe May-June correction.

Other sentiment measures are telling a similar story.

One is the weekly survey of investment advisers compiled by Investors Intelligence. Its latest reading, from earlier this week, shows a slightly higher level of bulls today than existed at the April market high. In fact, Investors Intelligence is reporting that the current level of bullishness is the highest since December 2007. Of course, that earlier period of excessive optimism came just as the 2002-2007 bull market was rolling over into a severe bear market.

Equally a source of concern is the Crowd Sentiment Poll compiled by Ned Davis Research, the quantitative research firm. To be sure, one of the components of this Poll is the Investors Intelligence survey, so this result is not particularly surprising. But the Poll reflects a number of other sentiment measures as well. And it currently stands at 69%, well into the "Excessive Bullishness" territory, and above the Poll's average level at prior market tops.

Needless to say, the disturbingly high levels of bullishness that exist today don't necessarily doom the market. Ned Davis, for one, is giving the rally the benefit of the doubt until it reverses direction, and he is therefore rated moderately bullish.

Still, it can't be good news for the bulls that the sentiment winds are no longer blowing in the rally's sails "” especially in light of the news I reported earlier this week that corporate insiders are now favoring the sell side at a rate last seen in early 2007. Read my Dec. 15 column on insiders.

Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.

Add Comment › · Recommend (1) · Post: Alert Email Print More Mark Hulbert Dec. 15, 2010 Insiders are headed for the exits Dec. 13, 2010 Window dressing creates opportunities Dec. 7, 2010 What "Santa Claus Rally" really means Dec. 2, 2010 Sam Eisenstadt forecasts a bullish 2011 Dec. 1, 2010 Market timers' reaction to the correction Explore related topics Dow Jones Industrial Average Comments Screener About Mark Hulbert

Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD became a service of MarketWatch in April 2002. In addition to being a Senior Columnist for MarketWatch, Hulbert writes a monthly column for Barron's.com and a column on investment strategies for the Journal of the American Association of Individual Investors. A frequent guest on television and radio shows, you may have seen Hulbert on CNBC, Wall Street Week, or ABC's World News This Morning. Most recently, Dow Jones and MarketWatch launched a new weekly newsletter based on Hulbert's research, entitled Hulbert on Markets: What's Working Now.

First Take The Countrywide albatross at B of A

Merrill and Countrywide, deals made when the bank appeared to under appreciate the gravity of the financial crisis, continue to be an enduring legacy of the wrong kind at B. of A.

11:39 a.m. Dec. 16, 2010

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"Mark Hulbert: Sentiment has taken turn for the worse http://on.mktw.net/h2xFQh" 12:18 a.m. EST, Dec. 17, 2010 from MktwHulbert

"Mark Hulbert: Insiders are headed for the exits http://on.mktw.net/exT3fq" 3:27 a.m. EST, Dec. 15, 2010 from MktwHulbert

"Mark Hulbert: Window dressing creates opportunities http://on.mktw.net/ehhSUc" 11:21 p.m. EST, Dec. 13, 2010 from MktwHulbert

"Mark Hulbert: What "Santa Claus Rally" really means http://on.mktw.net/fSbSDZ" 12:16 a.m. EST, Dec. 7, 2010 from MktwHulbert

"Mark Hulbert: Sam Eisenstadt forecasts a bullish 2011 http://on.mktw.net/foQisj" 11:39 p.m. EST, Dec. 2, 2010 from MktwHulbert

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The HNNSI currently stands at 73.3%, which is disturbingly high. The only other occasions this year when this sentiment benchmark got any higher were early November and late April/early May. Both occasions turned out to accompany stock market highs "” and in the earlier case came immediately before the infamous Flash Crash and severe May-June correction.

Other sentiment measures are telling a similar story.

One is the weekly survey of investment advisers compiled by Investors Intelligence. Its latest reading, from earlier this week, shows a slightly higher level of bulls today than existed at the April market high. In fact, Investors Intelligence is reporting that the current level of bullishness is the highest since December 2007. Of course, that earlier period of excessive optimism came just as the 2002-2007 bull market was rolling over into a severe bear market.

Equally a source of concern is the Crowd Sentiment Poll compiled by Ned Davis Research, the quantitative research firm. To be sure, one of the components of this Poll is the Investors Intelligence survey, so this result is not particularly surprising. But the Poll reflects a number of other sentiment measures as well. And it currently stands at 69%, well into the "Excessive Bullishness" territory, and above the Poll's average level at prior market tops.

Needless to say, the disturbingly high levels of bullishness that exist today don't necessarily doom the market. Ned Davis, for one, is giving the rally the benefit of the doubt until it reverses direction, and he is therefore rated moderately bullish.

Still, it can't be good news for the bulls that the sentiment winds are no longer blowing in the rally's sails "” especially in light of the news I reported earlier this week that corporate insiders are now favoring the sell side at a rate last seen in early 2007. Read my Dec. 15 column on insiders.

Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.

Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD became a service of MarketWatch in April 2002. In addition to being a Senior Columnist for MarketWatch, Hulbert writes a monthly column for Barron's.com and a column on investment strategies for the Journal of the American Association of Individual Investors. A frequent guest on television and radio shows, you may have seen Hulbert on CNBC, Wall Street Week, or ABC's World News This Morning. Most recently, Dow Jones and MarketWatch launched a new weekly newsletter based on Hulbert's research, entitled Hulbert on Markets: What's Working Now.

Merrill and Countrywide, deals made when the bank appeared to under appreciate the gravity of the financial crisis, continue to be an enduring legacy of the wrong kind at B. of A.

11:39 a.m. Dec. 16, 2010

"Mark Hulbert: Sentiment has taken turn for the worse http://on.mktw.net/h2xFQh" 12:18 a.m. EST, Dec. 17, 2010 from MktwHulbert

"Mark Hulbert: Insiders are headed for the exits http://on.mktw.net/exT3fq" 3:27 a.m. EST, Dec. 15, 2010 from MktwHulbert

"Mark Hulbert: Window dressing creates opportunities http://on.mktw.net/ehhSUc" 11:21 p.m. EST, Dec. 13, 2010 from MktwHulbert

"Mark Hulbert: What "Santa Claus Rally" really means http://on.mktw.net/fSbSDZ" 12:16 a.m. EST, Dec. 7, 2010 from MktwHulbert

"Mark Hulbert: Sam Eisenstadt forecasts a bullish 2011 http://on.mktw.net/foQisj" 11:39 p.m. EST, Dec. 2, 2010 from MktwHulbert

Thomas Kostigen

Ethics Monitor

Science, politics don't need any more mixing

Jennifer Waters

Consumer Confidential

How to foil electronic pickpockets

John Prestbo

Indexed Investor

Stock market's big 2010 surprises

Mark Hulbert

On the Markets

The slope of hope

Peter Brimelow

Wall Street Irregulars

Oil bull sees hyperinflation

Therese Poletti

Tech Tales

Best Buy gets hit by cheapskates

Robert Powell

On Retirement

401(k) changes give savers brighter future

David Marsh

Read Full Article »