The percentage of bulls in the Investor’s Intelligence Newsletter Writers Sentiment survey is at historic highs which works against stock prices in the medium-term from a contrarian point of view.

Below is the chart where I try to overlay the medium-term stock market cycle onto the 4-week average of the AAII sentiment survey. I think it provides a decent look at the cycle, and we are scheduled to bottom out sometime this month.

However, it doesn’t appear that the stock market cares much about sentiment at the moment… or the cycle. We have all seen periods like this in the past where the market just does what it wants to do.
 

Here is a look at the put/call ratios which provide a better view of the short-term cycle from a sentiment perspective. It looks like bullishness peaked this week, and it was the second peak since the election.

This ratio is inverted meaning that the lows indicate bullishness, and the highs indicate bearishness. So if you are a contrarian, you want to sell when the squiggly line is at the lows.
 

Sectors

I would be so lost without these handy spreadsheets. The leader list is narrowing down. The last two to be added as leaders were biotech and home builders. The last to fall off were the emerging markets and small caps.

I wouldn’t be too surprised if the small and mid caps re-emerged as leaders, and I don’t see any other group with the potential at the moment. And if I were to guess which is the next group to fall off the list, it would be the semiconductors because the chart is looking tired after 12 months of strong performance.
 

The small stocks have been in a sideways holding pattern for awhile. Is this a base that is building for break out higher? I am not sure. Although the chart really doesn’t look too bad, the small caps fell off the leader list this week.
 

It was a bad week for the emerging markets. Latin America, Korea, China, Russia all fell. These areas are very much under the control of short-term rates, and the relative strength of currencies.
 

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