For a broader look at the significance of a bullish signal from the "Dumb Money" indicator, please check out the following article from March, 2009: "Putting a Bullish Signal Context". In general, when sentiment is bearish, gains in the stock market occur at an accelerated rate. In essence, betting against the consensus can yield significant gains with minimal market exposure. However, there is no "holy grail", and risks remain as failed signals can lead to spectacular losses.
The two most recent signals occurred on May 28, 2010 and July 2, 2010. During the time, the "Dumb Money" indicator had a bullish signal the S&P500 gained 4.94% and 2.19% over a 2 and 3 week periods, respectively. Once again this is consistent with our notion of accelerated, annualized gains when sentiment is bearish.
However, what has been missing from these signals is a lack of follow through. The gains in the major indices have been unsustainable, and after 3 months and 2 prior signals, we find the market right back where we started. Not much progress has been made. This should be of concern for the bulls.
So with investors currently bearish, I suspect the short term will be capped to the downside. A weekly close below 105.44 on the SPY likely means a bear market. Failed signals in the face of bearish investor sentiment are a sign of a bear market. A weekly close above 107.58 would be bullish. With price currently at 106.86 on the SPY, this puts the SPY in a very narrow range that will be resolved soon.
"In many respects last week was very similar to the previous week. Buyers outnumbered sellers by a wide margin, but to a much smaller degree when the Financial sector is removed from the equation. The difference between the two weeks was in the conviction shown by buyers - there was less of it during the most recent period."