Three weeks ago investor sentiment was very bearish and this was a bull signal. As expected, stocks advanced rather handsomely. Of course, this was on anemic volume, and of course, all news was good news and of course, stocks only proceeded in one direction ---up! No doubt such price action is the hallmark of short covering. While this is how most rallies get started anyway, at some point stocks will need to gain on their own merit. We are at that point. With the sentiment indicators turning neutral, stocks will no longer have short covering to propel them higher. This puts the onus on the bulls - it is time to put up.
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". The current bounce has followed the expected script.
"As the market found its legs last week insiders found the numbers of their brokers and as a group increased their selling again. Stripping out the Financial sector, the number of companies with selling increased nearly 30% week-over-week while the number of companies with buying rose just 5%. With or without Financials in the mix, the numbers looked rather glum as the Weekly Score for the entire market fell to its worst level since the week ended May 18, 2010."