This weeks reading of 88.1 was the highest reading since the 89.33 level of 2/28/2007. With all the theatrics and the failing economy active money managers are the most long they have been in 5 1/2 years. I find that rather amazing. There are actually only three prior readings around this level in the history of the survey that started in the middle of 2006. The other readings all happened in relative proximity to each other. Here is the SPX chart marked with the dates.
The market struggled after each of the high readings. Several months after the first high reading in Nov. of 2006, the market was actually lower. Here is a look at the current chart.
The price action preceding the current high reading sure is different then the others. Those readings all came within days of SPX being at bull market highs. The current SPX high was back in Sept.
I think it is pretty clear the market has mostly priced in a successful resolution to the "fiscal cliff". Expectations are very high. Will those lofty expectations be met? What happens if they aren't? The Nov. 2006 reading came with SPX at 1406. The peak before the sell off in Feb. of 2007 was 1461. That sized move from here will only get us back to the Sept. high. If there is going to be a big move over the next few months it will be down. If the market continues up it will likely be slow and choppy.
The crash last summer started with a reading of 66.3. The crash in the spring of 2010 started with a reading of 83.9. Both of those levels are lower then we are now. If the market gets disappointed there is considerable downside risk.
Bob
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