After such a strong move off of the July lows it seems like an appropriate time to discuss how our sentiment indicators have reacted to the rise. The public short sales are still extremely high and the member and specialist short sales are surprisingly low, despite the advance. This is very bullish and suggests that the rally is just beginning. Other sentiment indicators such as the Market Vane, Investor's Intelligence, and AAII surveys are showing an increasing amount of bulls. Even though we are not at extremes in any of these surveys, we are becoming closer to an extreme level, which would suggest an oversaturation of bulls and too much optimism in the market. This would be very bearish for the market.

After the close on Tuesday, the Dow Jones Industrial average sits just one point below an all-time high and the S&P 500 broke out of its five month cup formation. The NASDAQ Composite needs to move another 5% to reach its April high and the Russell 2000 needs a 7% move to reach all-time highs.

After such a strong move off of the July lows it seems like an appropriate time to discuss how our sentiment indicators have reacted to the rise. The public short sales are still extremely high and the member and specialist short sales are surprisingly low, despite the advance. This is very bullish and suggests that the rally is just beginning. Other sentiment indicators such as the Market Vane, Investor's Intelligence, and AAII surveys are showing an increasing amount of bulls. Even though we are not at extremes in any of these surveys, we are becoming closer to an extreme level, which would suggest an oversaturation of bulls and too much optimism in the market. This would be very bearish for the market.

The first chart below has a 25 day exponential moving average over the total put/call ratio. You can notice that this indicator is still in bearish territory (higher numbers) and as this is a contrary indicator, this is very bullish for the market.

The second chart is of the NASDAQ highs divided by the NASDAQ lows. You can see how low this indicator is currently. Even though many technicians would suggest that the low numbers relative to recent peaks in the market show a divergerce that is bearish, our research has shown that markets top with extreme levels not with divergences. Therefore, this indicator is currently very bullish.

The last chart shows the BullandBearWise Index, which weights economic and market indicators from bullish (100) to bearish (0). This indicator is extremely low right now, despite the strong rise in the market. You can compare the dips to a chart of the stock market and see the powerful rallies that usual emerge after a dip lower. Therefore, this indicator is currently very bullish.

Even though the market has risen aggressively the last few months, surprisingly sentiment indicators average a neutral to slighly bearish reading, which suggests a neutral to bullish reading for the future of the stock market. You would certainly have expected more bullishness after such a move higher. These areas of negative sentiment should fuel the market higher in the months ahead.