The stock market’s comeuppance is coming, as bullishness gets extreme

By Mark Hulbert

The U.S. stock market’s five-month rally is coming to an end. Of course I don’t know when. That’s important to acknowledge, since this spring I presented arguments for why the market’s March lows could be retested in mid-June or mid-August. As many of you have emailed me recently to remind me, neither scenario came to pass.

Nevertheless, conditions are even stronger now for a correction. One big reason is that short-term market timers have become extremely bullish, which is not a good sign from a contrarian perspective. This is illustrated in the chart below, which plots the average recommended equity exposure among nearly 100 such timers that my firm monitors on a daily basis (which is the Hulbert Stock Newsletter Sentiment Index, or HSNSI). This average currently stands at 65.9% — higher than 95% of all daily readings since 2000, when my firm began calculating this index.

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