Investor Sentiment Continues To Decline And Market Grinds Higher

For the fourth straight week investor bullish sentiment has continued to decline. The American Association of Individual Investors reports bullish sentiment declined to 24.63% for the period ending February 4, 2009 versus last week's reading of 25.27%. In the week of January 8th, the bullishness reading stood at 48.70%. The four week bullish sentiment decline coincides with a four week decline in the S&P 500 Index as detailed below in the weekly chart of the index.

(click to enlarge)

True to form, the sentiment indicator is a contrarian one and as investors have become less bullish, the market has advanced approximately 2.4% this week with one trading day remaining.

Since the November low, the S&P continues to trade within a slightly bullish trend channel. Recent trading though has set up a flag pattern as noted in the below chart. If the S&P can close above 855 and penetrate the top of the flag, the market could see a move towards the top of the longer term trend channel.

(click to enlarge)

In addition to the positive bullish trend channel, the 50 moving average has begun to turn higher and the MACD portion of the chart has turned positive with the fast moving average line crossing above the slower moving average line.

This is certainly a difficult market, but with all the seemingly bad headline economic news, the market seems to want to grind higher. Keep in mind, this is the technical aspect of the market and fundamentals will win out in the long run.