The latest psychological indicators of investor sentiment show historic optimism indicative of a major stock market top. Taken from the "Psychological Indicators" printed in Investor's Business Daily each day and the "Market Watch" section of Barron's financial weekly, one sees that investor sentiment and market valuations have reached untenable extremes.
First off, Investor's Intelligence poll of advisory sentiment has recently shown more than 55% of advisors are bullish whereas less than 30% are bearish.
Secondly, the PE ratio on the S&P 500 recently climbed above 19, and the dividend yield on the DJIA has fallen to a record low below 2.15%. This indicates that the stock market is the most overvalued it has ever been in history.
Lastly, the mutual fund cash level is near a multi-year low at the current juncture. Again, this means there is a great deal of optimism among investors and indicates the market might be near an important top.
All in all, recent measure of sentiment and market valuation are consistent with a historic top in stock prices that will be followed by an unprecedented crash.