From the weekend letter:
Last week, I said that IT Momentum had turned up and confirmed, but that ST and Swing Momentum were neutral. I noted that all were rather flat and buried, so they were not much help. The Options were almost all Bearish, except for the OEX P/C which was flashing a Buy. We acknowledged that we have some really overdone sentiment, but we noted that we are at a point of recognition with a lot of factors working for the market between the strengthening economy, good capacity utilization, and, looking forward, good earnings and better tax policy. Plus, we noted that there's no place to put money besides the stock market. So, sure, sentiment was really over done, but at this point in this rally, looking for a top based upon even the most reliable sentiment, is all too likely to be painful. I thought we'd do well to buy dips here. And that proved to be a good approach. It's important to note that sentiment won't stop a rally. What it tells us is if there's good fuel for a decline, IF there's reason to sell. Without that reason to sell, there's not likely to be a decline. In fact, the excessive Bullish sentiment tends to be supportive of the rally. As we've seen. Tonight, we've got a Buy from the VIX P/C and a Sells from the CBOE:SPX, the Options Oscillator, and the Fully Long Fully Short (at least for now). The lack of Short Bears suggests no top on Monday. Ordinarily with sentiment like this, I'd be inclined to look for some selling, but we're at new highs in a parabolic rally in a uniquely positive context. Until we see some deterioration, I'd not be worrying about catching a decline. This rally could get even crazier. I have been a professional investor since before the Crash of '87. This market has a very different feel from the markets prior to the big Bear Markets that we've had over the past 30 years. I'm not going to stand in front of this rolling freight train.