It doesn't take a rocket scientist (or Wall Street analyst ~ a downgrade?) to figure out that investors are extremely bullish on the equity markets. Such extremes in sentiment will usually (85% of the time) lead to better risk adjusted buying opportunities in the future. In other words, the next best time to be a buyer of equities will be when investors are bearish not bullish as they are now. The markets don't have to go down just because everyone is bullish, but if you are a "believer" and buyer at these levels, then you will need to identify a market top and get to the exits before the next guy to extract profits. This is a very crowded trade and identifying the top is a tall order.
As you can tell I am bearish and not buying the hype, but like last week, I think it is worthwhile to explain what I mean by "bearish". This should NOT be a bull market top leading to a bear market. Bear markets come about when "buying the dip" fails. In other words, this overbought, over bullish market should correct providing a better risk adjusted buying opportunity in the future. Failure of a bounce to materialize at that point is a harbinger of a bear market. So bearish means that I expect to see a correction leading to a better risk adjusted buying opportunity, and this buying opportunity usually coincides with investors turning too bearish (i.e., bull signal).
Let me clarify my time frame, and this should help clarify the analysis. The average time between a bear signal and the next buy signal is approximately 80 trading days. The next bull phase, when it comes, should last about 100 trading days. So my analysis is not suitable for the day trader looking to get the next 2% move. I would think what I am talking about here is for the trader who is intermediate term in nature and who tries to position themselves for major swings in the market. There will be a lot of ups and downs between now and the next quality buy signal.
Remember, the market does not have to go down because everyone is bullish and it may go higher. If it does, so be it. I will participate if the reward to risk profile, as I have defined these metrics, improves. Trading and investing is about managing risks. If you don't want to assume that responsibility of managing risks, then you should be a buy and hold kind of investor.
Sellers outnumbered buyers for the sixteenth consecutive week, extending a record streak for our reporting period (dating to January 1, 2004). While the strong sell bias continued, the number of sellers did fall more than -20% week-over-week and, for the first time in nine weeks, Buy Inflections outnumbered Sell Inflections. Volume will continue to decrease due to the holidays, the closure of trading windows and the fact that we're coming off a period of very heavy selling. "