1. AAII bullish sentiment this week has fallen back to 34.7. It can be seen that bullish sentiment in this recent rally did not hit the kind of extreme levels of 50+ that previous signified a top.
2. Investors Intelligence sentiment showed a marginal increase in bulls this week but, again, sentiment has not reached bullish extreme levels that previously signalled a top, as evidenced in the chart below.
3. Bullish percent over call/put ratio similarly has not reached the kind of extreme of important market tops, which would be up at 110+.
4. SP500 stocks above the 50MA has pulled back a little, but also did not reach into the upper extreme band yet.
5. NYSE advance-declines are at new highs for this cyclical bull, showing that breadth is strong. As marked in red, the previous cyclical bull top of 2007 showed a negative divergence in this indicator which is currently absent.
Source: Cobra / Stockcharts
6. Commercial hedger net short position is the biggest current threat to the bullish positon for US stocks.
7. But this can be contrasted with penny stock speculation which is suggestive of the opposite – a low in the markets should be here.
8. Drawing the broader range of Sentimentrader indicators together it can be seen that there are more indicators at bearish extremes than at bullish extremes, but the percentage at bearish extremes is not calling for a top here. Previously bearish and bullish extremes hit 30% before marking an important reversal.
In summary, technical indicators point to markets more bullish than bearish and more overbought than oversold, but in both sentiment and price not at levels that would signify a top. Plus breadth is supportive. Concerns a few weeks ago over defensives leading stock indices upwards and a lack of small cap participation have been rectified in the last couple of weeks where rotation has made for a catch up in those underperformers.
There is no doubt a level of expectation regarding Jackson Hole and a clearer message regarding QE, but what the technical picture reveals is that even in the event of disappointment, stocks could still go on to breakout upwards here before signalling a top, as it is normal for these indicators to hit extremes before a reversal, and we are not there yet.