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One of our four key tactical indicators is the percentage of Newsletter Writers polled by Investors Intelligence that are “Bullish.” Remember, coming out of the early year swoon, we highlighted how “bulls” were less than 25%, which had only happened just after the 1994, 2008, and 2011 market lows. The S&P 500 has been up 11.7% from that March 3rd reading, and with the CBOE Volatility Index at 11, the weekly Stochastic at over 90, such optimism has many calling for an imminent correction.
The history of such high readings in the “bullish” camp suggests otherwise, with the four prior occurrences leading to a median additional gain of 3.87% over 52 days prior to the next 5% correction (chart below). Although ultimately, there may be a more meaningful correction associate with high optimism, the shortest duration prior to the next 5% pullback was just shy of five weeks – so we would be careful to not be overly sensitive to a 5% or greater correction just yet.
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