This contrarian indicator could point to more gains

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.

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"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 S&P 500 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."

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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.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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