logo

This contrarian indicator could point to more gains

VIDEO3:1403:14
Bearish sentiment nears year-to-date lows
VIDEO1:1301:13
Here's what's wrong with the recent rally: Yamada
VIDEO2:3102:31
Which stocks will lead the Dow next?

With stocks marching toward record highs, bullish sentiment is also on the rise.

According to the American Association of Individual Investors, bullish sentiment is nearing a year-to-date high, with about 40 percent of survey participants seeing stocks gaining in the next six months. And although some investors watch sentiment swings as a contrarian indicator, others say the market's recent run isn't over.

"If you are a contrarian, you would obviously tend to look at this and say it's a bad sign. But I look at it in a completely different way. You can't look at these sentiment indicators in a vacuum," said David Seaburg, head of sales trading at Cowen & Co.

Seaburg said the increase in bullish sentiment is no cause for concern, mainly because the way investors are positioning signals complacency more than overreaching for market gains.

Read More This surging sector is about to turn: Technician

"We're not seeing the risk being taken or the real rush to buy those upside calls, nor are we seeing the protection being bought as far as buying some downside puts to protect portfolios, " he said Thursday on CNBC's "Trading Nation. "

Looking at the charts, Craig Johnson of Piper Jaffray said the has seen a bullish double bottom pattern and is on its way to retesting its highs from May.


"We're certainly glad we didn't throw in the towel and become bearish in this market," Johnson said Thursday. "We think we're ultimately setting ourselves up for a move for our original price objective of 2,350 in 2016."

Read More For stocks, it looks like 2011 all over again

A move to 2,350 for the S&P would be a 12 percent increase from where the index traded on Friday.

"A lot of investors want 2015 done. It's been a pretty good year for those active managers out there that have made the right sector bets," he said.

Want to be a part of the Trading Nation? If you'd like to call into our live Wednesday show, email your name, number, and a question to TradingNation@cnbc.com