another short term contrarian warning sign for the bulls

The Wall Street Sentiment Survey is unique in that the poll is taken on Friday after the market closes, and it asks participants for their forecast for the following week. This differs from other polls that take opinions through the week during periods when the market is active and changing. 

Last week’s survey results (June 29 cutoff) were surprisingly one sided with 80% bulls versus 20% bears.

Sentiment indicators are contrarian, so with that many bulls, there was a pretty good chance that prices would close down this week, which they did, thanks to Friday’s selloff. 

Another point worth noting is typical price behavior after a climax. Eighty percent bulls is a climactic reading, so we normally expect a short-term top to form within a few days. After a few days of consolidation, it is possible for the rally to continue, but this week’s price top has set up an ascending wedge pattern, which has bearish implications — the rising trend line will probably be violated.  

As per our piece yesterday on the NAAIM reading, and in unison with short term overbought readings in global markets, caution at the very least should currently be exercised and leverage peeled back.