Overbought Doesn’t Mean Over [S&P 500]

partyisoverWhat if I told you there is one market indicator that almost always predicts a market dip?┬áThe Investors Intelligence Advisors Sentiment readings have done an excellent job at predicting corrections, but don’t let the amazing track record whip you out of quality stocks.

Each week, Investors Intelligence polls more than 100 independent advisors and newsletter publishers on whether they are bullish or bearish.

When bullish readings are in extreme territory, it’s an indication that the market is at or near a high.

When more than 55% of those polled are bullish it’s a red flag… and when more than 60% are bullish it’s a bright red flag.

Currently a whopping 62.2% are bullish.

Another way to gauge when investors are overly bullish is by watching the percentage spread between bulls and bears. For example, if 20% are bearish and 55% are bullish, the spread is 35. And anything above 35 is considered to be overly bullish territory.

The current spread is 44.8!

Don’t Do This

The mistake that I want you to avoid is thinking this overly bullish reading means that we are headed for some sort of a bear market or crash.

The chart below shows the S&P 500(INDEXSP:.INX), the Advisors Sentiment readings and the bulls/bears spread over the last 10 years.

I put red dots on the charts where the bulls were above 60% or the spread was more than 40%. Relatively minor corrections occurred shortly after five of the seven times that sentiment readings were overly bullish to such a large degree.

The minor corrections (backing out the two big declines) were merely

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