September 10, 2020
SPX: As discussed yesterday, markets don’t usually make a top on accelerating price momentum and elevated bearish sentiment. And last Wednesday’s record high close in the S&P 500 occurred with accelerating price momentum, no apparent internal divergences and elevated bearish sentiment. At a minimum, we expect a retest of last week’s high before becoming concerned about an ultimate top in the S&P 500.
Sentiment: We’ve covered this before, but sentiment should only be considered a contrarian signal at extremes. And there was nothing extreme about last week’s data with AAII bullish sentiment at 32.08 and bearish sentiment at 39.62. The last time we warned of internal divergences, decelerating price trend momentum and bullish equity sentiment was January 23, 2020. At the time, AAII bullish sentiment was sitting at 45.6% and bearish sentiment at 24.77. This morning, we received the most recent weekly AAII data with bullish sentiment of only 23.71 and bearish sentiment approaching extremes at 48.45.