I think people are more bullish than they were a week or two ago but I don't think they are complacent by any stretch of the imagination. In fact perhaps I should have said folks are less bearish rather than more bullish.
Before I get to the sentiment side of things let me once again discuss the 200-day moving average. I believe many will feel a sense of relief that the S&P is now above the 200-day moving average line since it seems to be a line in the sand for many. Sure I care about the long-term moving average line but I care about it because of the direction it is heading, not because of the level it is.
Two hundred trading days ago was late January, the day before the peak. If we replace higher numbers with lower numbers the 200-day moving average line rolls over. It appears it began to roll over in mid October. However, as I explained then, we are now going to drop that big plunge from late January/early February. That means this long-term moving average line is likely to flatten out rather than roll over. In other words, at this point in time it is my view that the 200-day moving average line is neutral for the market; it is neither bullish nor bearish. Don't fuss so much.
I was asked about a retest or a W pattern. I tend to think we can't get the second V of the W until everyone is back on board. If we look at the chart of the S&P again I have boxed off the twin peaks of late February and early March. When I discuss that I think pullbacks will lead to another rally, this is a pattern that we saw back then (and is obviously a possibility now). We rallied 200+ S&P points then we fell a quick hundred points only to rally right back again.
That secondary rally is what I'm talking about. That's the one where folks feel better. The one where they say "we're no longer overbought." The one where the complacency typically creeps in. It doesn't have to look exactly like that but a pullback and a re-rally is the pattern that typically changes sentiment.
And until we turn sentiment I don't think we can get the W pattern. That's why the second V of the W typically arrives weeks or months later, not immediately.
Right now the Investors Intelligence Bulls just tagged 42.5% which means we need to see those turn much higher. Thursday morning we will get this week's reading from the American Association of Individual Investors. Last week the bulls were 37%. I expect that to rise but perhaps not dramatically just yet. Time will tell.
The 10-day moving average of the put/call ratio has only just rolled over from a high level this week. Here again, I think that indicator would have to take a trip back down, at the very least under 100%, for us to believe sentiment has really shifted.
We are into overbought territory now so a pullback can arrive at any time. Right now I think a pullback and re-rally would look something like I've drawn in blue on the S&P chart above.