Professional investors are getting really confident that the stock market will keep moving higher — maybe a little too confident.
A popular gauge of investor sentiment, in fact, is flashing a signal that the latest runup in equity prices to fresh record highs is getting overheated. The Investors Intelligence survey, which measures the attitudes of more than 100 investor newsletter authors, is showing bullishness at 56.2 percent of respondents, which is indicative of an unusually high level of optimism.
That reading "is considered the danger level," said John Gray, co-editor of the Investors Intelligence newsletter, which interprets high levels of sentiment in either direction as indicators that the market is poised to head the other way in the near term.
Gray notes that when the bullish level exceeds 55 percent, it has been consistent with a market pullback. It happened in February 2015 and then in April of the same year, when the market was on a ride that eventually would take the S&P 500 down about 15 percent in 12 months' time.
Gray said judging by current conditions, the bulls could have room to run.
"Early July saw the bulls exceed 50 percent and we said it might take the Nasdaq comp joining other ongoing index highs to achieve the capitulation to boost the reading to into the top region," he said. "The bulls could still advance further to equal those 2015 peak levels."