Sentiment Indicators Are Saying the Bulls Are Overextended, Time to Short

We have several indicators aligned saying that now is a high-probability time to short:

• AAII sentiment survey. This nailed the end of August bottom when it was 21% bullish/49% bearish (-29% spread). It has now dramatically flipped to 44% bullish/32% bearish (+12% spread).
• CBOE equity put/call ratio. The five-day moving average is more than one standard deviation below the mean.
• Percentage of stocks above the 20-day moving average. This indicator nailed the late-July and mid-June tops.
• Mutual fund cash balances, which are at a five year low. This has also been a great contrary indicator.

It's difficult for the market to go much higher with the sentiment indicators looking like this. Who would the marginal buyer be? It's also much easier for the market to go lower. Low levels of put buying means that investors are not hedged against a decline. They will be quick to sell.

Most people feel uncomfortable standing apart from the crowd. If everyone else is shorting natural gas, or lining their trading floor with TVs blasting CNBC propaganda, they do it too.