There are too many signs out there that there is excess bullishness. The sentiment and newsletter surveys all have bulls on the high side. Rydex traders are aggressively positioned and we have seen a decent amount of call buying in recent weeks. Anecdotally, I have been hearing that hedge funds have turned bullish as well.
Despite all this evidence I cannot shake the feeling large investors are not positioned aggressively. They were at very low levels of exposure in early December so even if they are bullish its unlikely that they have ramped up their positions to aggressive levels. We are in a seasonally strong period and corporations are aggressively repurchasing shares. Additionally, the trading does not seem very exuberant to me.
There is too much evidence out there for me to ignore that bullishness might be getting out of hand. I am officially downgrading my market outlook to confused.