Bullishness Getting To Extreme Levels

Financial newsletters will survey their subscribers from time to time about their outlook on the market including how bullish they are. We are looking at a very high level of newsletter subscribers that are bullish on the market right now. You might think this is a good thing but, studies have shown that when bullishness gets excessive among these newsletter subscribers it tends to indicate a possible reversal in the current trend; this is a contrary indicator.

Overall, the market is looking good, although it is showing signs of fatigue and, as I have mentioned over a number of weeks, we are ripe for some kind of pullback. No worries though; this should be nothing more than a healthy bull market resting for its next leg up.

Oil continues to firm up. In fact, Saudi Arabia says it might be discussing an increase in oil prices. Russia has also had enough of falling oil prices and is jawboning about trying to keep the price firm. So, it would seem, energy is starting to get a real bid again. If this continues it will put some wind in the markets sails.

The other area that I am keeping an eye on is Tech. Technology stocks make up over 17% of the S&P 500 Index. So, if we can get Technology back in the game that will really help this bull market climb. The Semiconductors, in particular, have been a real bellwether when it comes to leading bull markets.

Even though, overall, it was a pretty boring week in the market, with the S&P 500 ending up pretty much where it started, there was some talk from the Federal Reserve about the likelihood of possible rate hikes. New York Fed President William Dundley indicated that we might have an interest rate hike sooner than later. He was leaning toward sometime this year but, we have heard this kind of talk before. When the minutes from the Feds July 26-27 meetings were released it seemed to tamp down the comments that Mr. Dundley had made.

From a technical perspective we see a market that is positive on its long term, intermediate term and short term trends. That is exactly what you want to see. Yes, we would all like to see more volume. Perhaps more volume will come in after we get this much needed downward action that we are facing? When you look at a weekly chart of the S&P 500 Index you can see the market close 3 weeks ago on a candle stick that is referred to as a "hanging man". I think we can assume, with a name like that, this is not a positive thing for the market and, oftentimes, is a precursor to a fall in the market.

Next, we look at the last 2 weekly closings on the S&P 500 Index. Both of the weeks have closed with a "doji" A doji at the top of an Index's move up can often be a warning before the market pulls backs and, we don't have just one weekly doji but, two. No one knows what the market is going to do tomorrow but, I can tell you what it is doing today. The charts are telling us it needs a rest. Even Gold Miners pulled back at the end of last week. However, the trend is still strong and until other evidence occurs it is still one of the leaders at this time.