Equity market investor sentiment remains extremely optimistic. In fact, sentiment became more bullishly extreme despite the drop in prices week over week. See the Equity Market Investor Sentimeter below, which is our most comprehensive sentiment indicator. This indicator is constructed from 10 different data series including opinion data (i.e., how do you feel about the market?) as well as money flow data (i.e., where is the money going?). This is the current state of equity market investor sentiment.

Increasing investor bullishness despite the drop in prices is a mini negative divergence of sorts. Investors continue to put a great deal of credence into the notion that the Federal Reserve has backstopped the market, and this belief seems to have gone parabolic this past week even if price hasn't. We believe these are signs of the current speculative market environment, which is characterized as being dislocated from the underlying fundamentals and technicals. It is late in the rally for sure, but it takes "bulls to make a bull market", and this is all we are seeing. Meaningful short term gains can be had in these circumstances.

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