We believe the stock market is about to being another strong leg higher. The S&P 500 and Russell 2000 have recently broken above 2006 highs and the NASDAQ Composite and NASDAQ 100 are in the process of completing a small base before a likely breakout to new highs. Tonight we will be looking at a few sentiment indicators.

The public short sales (not shown below) are still extremely high, suggesting that the uptrend still has a great amount of room to grow.

The first chart below has a 10 and 25 day exponential moving average of the total put/call ratio. The stock market generally tops with low readings in the total put/call ratio. You can notice that even though the put/call ratio has fallen the last six months it still has much more room to fall before we reach the area where a typical top would be.

The second chart has a 10 and 25 day exponential moving average of the NASDAQ highs / NASDAQ lows. You can see that even though the indicator has risen since the August bottom, we are still at the relatively low level of 5.

The final chart shows the last six months of Investors Intelligence data. You can see how extremely bullish newsletter writers currently are. This indicator would suggest that the market is topping.

When looking at sentiment indicators alone, the market seems to be in a neutral to slightly overbought condition. After the recent advance, we could certainly have expected more bullishness in the area of sentiment. This suggests to us that the next leg of this advance should be rather powerful.