During the last few months, it seems like I have been repeating myself quite a bit with regard to the sentiment indicators for the overall market.
I have written about the Investors Intelligence Report several times and nothing has changed — the bullish percentage continues to climb.
I have written about the CBOE Equity Put/Call ratio and how the 21-day moving average has continued to slide lower and has yet to change course.
Rather than repeating myself, I wanted to explain why I these indicators worry me about the overall market.
Think of the market as a pressure cooker. If the pressure doesn’t get released properly, eventually the lid gets blown off and we have an explosion.
Sentiment analysis is the pressure gauge for the market. As the bullish sentiment continues to climb, the higher the risk becomes that the market is setting up for an explosion.
Systematic pullbacks are healthy for the market as they are the means for the pressure to be released.
We haven’t had a measurable pullback for quite some time now. My advice would be to take steps to protect your portfolio in the coming weeks.
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