Over the past two weeks, The Sentimeter has gone from extreme bullish optimism to neutral. While the indicator did a good job alerting us to selling pressure, the real key going forward is if the selling can actually pick up steam to convert all those bulls into bears. It has been nearly 2 years since the last "real" bull signal when investors were extremely bearish. Over the past 2 years, any modest selling has been met with either the introduction of a new Federal Reserve asset purchasing program or the proclamation (i.e., jawboning) that asset purchases will continue essentially forever. The market needs to clear itself of weak hands, and the best way to accomplish this is selling. Anything short of this will lead to the same old thing. At this point in the cycle, shallow dips will lead to only marginal new highs at best.

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.

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