Sentiment's running hot - what's it mean?

After all that chop earlier this week, the various positive forecasts we posted this weekend are coming to fruition. But as we're looking at a potential turn time with a potential high, let's look at the bullish sentiment. This is the year when Pamplona decided to do its last "running of the bulls" - might it be similar for the stock markets? We'll look at some charts one at a time, which indicate things are overdone right now ... But probably only indicating another buyable dip is coming due.

First the volatility index ($VIX). It dropped all right, but starting to retest its 200-day moving average. Expect a bounce. Maybe it'll drop under the 200-dma before the rally finishes in, say, a month or a bit more. But a bounce in VIX and pullback in the markets should start, probably tomorrow or Monday. Here's the VIX chart - below it, we'll discuss other sentiment measures.

Next are the put/call ratio for equities ($CPCE), and the Sentimentrader's index. The put/call ratio is low enough to warrant a pullback, and it's showing some divergence that supports this idea:

And the Sentimentrader index also looks overheated:

And as I surfed over to http://www.sentimentrader.com/, I saw they have the following intro to an article they've written for their members:

After today's fireworks, a couple of our indicators are showing historic levels not seen in at least a decade. For example, we've never seen a day when more than 94% of S&P 500 stocks were above their 50-day average. Until today. Individual investor and corporate insider sentiment are turning a little bit troublesome. ....

So maybe they're seeing similar concerns.

Let me point out, I don't think the markets will roll over totally yet. I think these charts signal just a good pullback dip coming up. Only when we see more divergence, such as the VIX making a higher low along with higher highs in stocks, should we become more concerned. Breadth statistics still support more rallying, and timewise this cyclic rally should have some more weeks to go. So the sky isn't falling yet. This overheated situation just suggests the market needs a cooling off pullback soon.