Sentiment indicators that are pointing to too much bullishness are starting to creep up. Rydex traders have been in the overly bullish camp during the most recent rally, but on Friday they moved towards the extreme bullish camp. Earlier in the week we saw individual investor bears shrink to extreme levels as well. Anecdotally, I am not seeing that much bullishness but the numbers don't lie and I believe there is something to it.
I remain of the belief that the large investors such as hedge funds are positioned relatively conservatively. This makes the likelihood of a large decline absent a systemic event small. However, the overly bullish sentiment from traders and small investors is increasing the probability of a short term decline.
I have used the recent strength to cut back on my aggressive trading positions but have kept a core medium sized net long position in tact. I would likely use another leg up to cut back even further as I am growing concerned about the possibility of a short term correction.