Market Sentiment: U.S. stocks rose for a seventh straight week, the longest rally since May 2007

Yet another stone to the edifice of irrational exuberance and extreme overbullishness: Bloomberg is reporting that the equity markets just experienced the longest rally since May 2007 and the vocabulary they are using is quite telling.

Moreover, short selling has reached a one year low, which by itself is not a multi-year extreme, but is still quite noteworthy as we are at a 30-month high.
Jan. 15 (Bloomberg) -- U.S. stocks rose for a seventh straight week, the longest rally since May 2007, buoyed by optimism about corporate earnings and European efforts to control the region’s debt crisis.
“We have an environment that’s supportive for stocks,” said Warren Koontz, head of U.S. large-cap value stocks at Loomis Sayles & Co. in Boston, which manages $150 billion. “The economy is on a much more solid upward trajectory.”
 Why is that? Maybe unemployment declining? Taxes falling? Sovereign insolvency issues resolving? Of course not. Actually, it's quite the opposite, as all the economic figures are now showing contraction. This is just rationalizing the action on the equity market, nothing more.

The S&P 500 rallied after European actions to bolster the region’s sovereign-bailout fund and Portugal’s sale of government debt. The start of the U.S. earnings season helped overshadow economic data showing initial jobless claims rose more than estimated in the first week of the year and lower- than-forecast retail sales in December.

Bets against stocks in the S&P 500 Index fell to a one-year low as short sellers reduced speculation that technology and telephone stocks will decline. Short interest on the benchmark gauge dropped to 6.87 billion shares, or 3.9 percent of shares available for trading, as of Dec. 31, down 5.7 percent from two weeks earlier, according to data compiled by U.S. exchanges and Bloomberg. It was the third straight period that S&P 500 short selling fell.
“We’re juggling the fundamental economic prospects with the momentum in the equity market,” said George Feiger, chief executive offer of Contango Capital Advisors Inc., a San Francisco-based wealth management firm with about $4 billion in assets. “The momentum is pushing for further rises in equity prices, but we remain cautious because we don’t believe there’s a lot of justification for further gains.”
 This is a good analysis. There are no justifications for the market to go higher, except momentum.

In just within one month, all the stars have aligned and we now have the perfect set up for a major major top followed by a sharp decline which probably will be even more dramatic than what we experienced in 2008. See for yourself the previous "achievements" of Mr Market:
  1. No New Normal Next Year Seen by Strategists Predicting 11% Gain in S&P 500
  2. Hedge Funds Raise Commodity Gain Bets to 4-Year High
  3. Put Call Ratio: Everyone’s Betting On The Bull
  4. Volatility is back to April 2010 levels
  5. Rydex Nasdaq 100 Bull/Bear Ratio At Highest Since Dot Com Collapse
  6. US CEOs Most Optimistic since 2006
  7. Extreme bullishness in emerging countries, money pouring into stocks at the fastest pace since 2007, biggest rally in 16 years
  8. SentimentTrader.com: Equity Hedging Index is at a new record low
  9. Trading of U.S. stock options soared to the second-highest level in nearly four decades of history
  10. Please also note that the put/call ratio is dangerously approaching the historically low level of April 2010
  11. Volatility as measured by the VIX falls back to April 2007 levels
  12. Best time to buy stock in decades (yes, there's an ending 's' at decades)
  13. Jim O'Neill, Goldman Sachs Asset Mgmt. chairman: "2011, Year of the USA"
  14. Market Sentiment: Margin Debt Soars to Highest Levels Since September 2008
  15. Market sentiment: crude oil bets reach a four-year high
  16. We're back in good old 2000s, with Facebook valued 100 times earnings.

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