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I just noticed that last weeks Market Vane Bullish Consensus was reported at 65% for the week ending January 21, 2011, the highest level since October 26, 2007.

The Market Vane Bullish Consensus is compiled daily (but is available on a weekly basis as well) by tracking the buy and sell recommendations of leading market advisers and commodity trading advisers (CTA) relative to a particular market (in this event the stock market), and reflects the open positions of the advisers and CTAs as of that day's market close.

As Rennie Yang from MarketTells already showed, this group is regularly on the right side of the market, and consecutive readings above | below the 50% mark do more often have positive | negative implications for the market's intermediate- and long-term performance, but not necessarily over the short-term, as Table I below might show.

Table I below shows all occurrences (since 1990) and the market's (SPY's) performance over the course of the then following 5 (1 week), 10 (2 weeks), 15 (3 weeks) and 21 sessions (1 month) later, assumed one went long of the last session of a week (like on January 21, 2011) where the Market Vane Bullish Consensus was reported at or above the 65% mark for the first time (means no consecutive readings were accounted for) in the past.

+ no close below trigger day's close during period under review
- no close above trigger day's close during period under review

Althoughthe market's performance is mixed and no significant edge provided over the course of the then following three weeks (probabilities and odds are more or less evenly distributed on both sides of the market), the SPY was trading at a lower level (with a median change of -1.02%) one month later on 20 out of 33 occurrences (or 60.61% of the time), significantly higher than the at-any-time (random) chance of 39.22% for trading at a lower level one month later.

But as already presented two weeks ago (see Will Too Many Bulls Really Make a Bear?), this group of market professionals is regularly on the right side of the market looking a couple of months ahead. Table II below shows all occurrences (since 1990) and the market's (SPY's) performance over the course of the then following 1, 3, 6 and 12 months, assumed one went long of the last session of a week (like on January 7, 2011) where the Market Vane Bullish Consensus was reported at or above the 63% mark for the first time (means no consecutive readings were accounted for) at the same time when the SPY had posted a 52-week high during the then most recent five sessions (means a sizable bullish optimism at market highs).

+ no close below trigger day's close during period under review
- no close above trigger day's close during period under review

In this event the market already shows an above-average probability for trading higher one and two months later, but a perfect positive score of 22:0 for trading higher 12 month later (with a median gain of 20.54%).

Conclusions:

Although the number of independent occurrences is limited: Wth the Market Vane Bullish Consensus crossing the 65% mark for the first time since October 26, 2007, chances are tilt in favor of a short-term consolidation of recent gains of the course of the next four weeks, but any sizable pullback might provide a buying opportunity targeting (significant) higher prices into the end of the year (and potentially not only at the end, but during the remainder of the year as well).

Successful trading,