Figure 1 shows a weekly chart of the SP500 with the composite sentiment indicator. This indicator is constructed from 10 different variables that assess investor sentiment and behavior. It utilizes opinion data (i.e., Investors Intelligence) as well as asset data and money flows (i.e., Rydex and insider buying).
Figure 1. Composite Sentiment Indicator/ Weekly
The prior 4 extreme readings are noted on the chart. While prices did go higher in several cases, investors need to understand that we are nearer the end of the rally. Or at best, there might be a short term pullback in the works that lasts beyond 24 hours. This is now the third week in a row this indicator has been extreme.
