I was dumbfounded last week when I saw the latest Investors Intelligence Report. The bullish percentage jumped to 45.7 percent, while the bearish percentage dropped to 23.4 percent.
This put the ratio of bulls to bears at 1.95, which is the highest ratio since the first week of October. The ratio was falling back then, as the market had peaked in September.
The perplexing part of the ratio jumping is the fact that we still don’t have a budget deal in Washington. There was some indication this week that progress was being made, but the Investors Intelligence report came out last Wednesday.
While I don’t think it will be the end of the world if we don’t get a budget deal by the end of the year, I do think we will see increased selling during the final week of the year if we don’t get a deal.
Look at it this way — if you were sitting on a big gain on a stock and had the opportunity to sell the stock and pay capital gains tax at a rate of 15 percent or wait another week and pay 20 percent, which one would you choose?
Let’s hope it doesn’t come down to that final week of the year, but if it does, look for some pretty significant selling pressure.
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