The most pertinent fact is that we are still in the seasonally strong part of the year. That will last until a week from tomorrow. Usually, very positive sentiment is a negative data point because it means that most are likely already near fully invested and few are left to buy and push the market higher. However, we are in tax refund season, when many are flush with cash. The bullish sentiment actually makes people more likely to invest that money in the market. This is also the time of the year when many make asset allocation decisions and a bullish backdrop makes it more likely that those allocations will include more stocks and less cash.
Once the seasonally strong period ends the extreme bullish sentiment should start to matter. That was the case in January as extreme sentiment did not matter until seasonality turned negative. This time around seasonality will stay weak for a lot longer. Additionally, stimulus will start wearing off in the coming months and comps will start getting tougher.
Two weeks ago we saw record readings on the ISE and CBOE put/call ratio. I thought that the readings warranted taking a shot on the short side despite the seasonality.While it did lead to a nasty day on option expiration and some backing and filling last week, ultimately the S&P 500 made a new high Friday. I closed out the position last week and will look to revisit it again in the coming week.