The Broader Market Is Due for a Pullback

Key measures of investor sentiment and market performance have reached extreme levels, indicating that the odds of a short-term downturn are rising. Just last week, Bespoke Investment reported the following tidbits on its blog:

• The American Association of Individual Investors (AAII) weekly sentiment survey is showing bullishness among individual investors at a two-year high.
• On Wednesday, 79.6% of U.S. stocks were in overbought status (as calculated by Bespoke) — the highest since March 2007.
• Over 90% of S&P 500 stocks were trading over their 50-day moving averages, only the sixth time this has occurred since 2009.

If these extremes do in fact result in a pullback, the type of lower-quality tech stocks that have come so far in recent weeks are almost certain to underperform.