The prolonged bullish run in the market is set to break a record on Friday. Unless we see a crash in the next few days, January 19 will mark the 395th day without a five percent pullback in the S&P 500, a streak that stretches all the way back to June ’16. That bullish environment is causing some sentiment indicators to hit extreme levels.
The Investors Intelligence survey from last week showed 64.4 percent of advisors were bullish compared to only 13.5 percent that were bearish. This gave us a ratio of 4.77 bulls for every bear and that is the highest the ratio has been since 1987. I found this chart from Yardeni Research and if you look at the very far left of the chart you can see that the only other time the ratio got anywhere near the 5:1 level was in early ’87.
Investors Intelligence isn’t the only sentiment indicator reaching extreme bullish levels either. The American Association of Individual Investors sentiment survey also reached an extremely optimistic reading recently. During the week of January 3, the survey showed 59.8 percent bullish and 15.6 percent bearish, giving us a ratio of 3.83:1. That is the highest reading for this ratio since December ‘10 when the reading was 3.85:1. The last time the ratio was over 4:1 was in July ’05.
While not a direct sentiment indicator, some people view the CBOE Volatility Index (VIX) as a form of sentiment and low readings are considered a sign of complacency or optimism. The VIX was introduced in January 1999 and on November 24, it hit 8.56, the lowest reading ever for the index.
It is also worth mentioning that the Spyders turn 25 this month and the 10-month RSI is the highest it has ever been, meaning the most overbought they have been, ever.
While the momentum is clearly to the upside, when we start seeing extreme bullish readings that haven’t been seen in 30 years, it makes me nervous. I wouldn’t rush out and sell all your stocks, but I would be paying closer attention to my portfolio if I were you.