After nearing what some analysts were calling "red flag territory," investment advisor optimism about U.S. stocks fell Wednesday for the first time in 10 weeks, according to the 35-year-old sentiment indicator compiled by Investor's Intelligence newsletter.
The poll of investment advisors, conducted late last week, showed the percentage who considered themselves bullish, or optimistic, about stocks backed off to 56.9% from 57.9% the previous week. The 60% level is traditionally seen as dangerously high.
Optimism hadn't been so high since the technical indicator reached 60% on Jan. 17, 1992--just as the market cooled off. After rising 20% in 1991, the Dow Jones industrials gained 4% in 1992.
"Be cautious here," Investor's Intelligence editor Michael Burke warned readers in his online commentary last week before the latest numbers came out, as bullish sentiment reached a level not seen in nearly seven years.
Technical analysts--who try to predict the market based on past performance rather than on company fundamentals, such as profit potential--say a high level of optimism suggests investors might have little cash left to invest and propel stocks higher.
Before last week's fall, optimism had risen for nine straight weeks, a record for the newsletter's survey.
The survey's latest turn could be interpreted in at least two ways, depending on your point of view. It could be seen as a validation of the market's recent cool-off. Or it could be seen as a signal that the market still has room to advance, as less bullishness suggests there still is some cash on the sidelines that can be invested in equities.
The sentiment gauge and other technical tools are tracked each Tuesday in the Stock Market Barometers chart in The Times' Wall Street, California pages.
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Bullishness among advisors is down for the first time in 10 weeks, as measured by Investor's Intelligence newsletter. Weekly figures and latest:
* Percentage of advisors predicting a 10% drop in the next 12 months.
Source: Investor's Intelligence