Advisors Are Bullish, and That Could Be a Bear

Investment advisors’ optimism about the outlook for U.S. stocks rose last week to its highest point since January 1992, a move some investors said could be an ominous harbinger for the market.

Increased confidence was reflected in a weekly survey by the Investors Intelligence newsletter, which found that the percentage of 140 advisors who said they were bullish Friday increased to 56% from 54.7%. It was the highest reading since bullishness registered 60% in the week ended Jan. 24, 1992, and the sixth week in the last seven in which optimism rose.

The proportion of advisors who said they were pessimistic, meanwhile, declined for a fourth week, to 29.3% from 30.8% in the week ended Nov. 22.

For many investors, rising optimism is a cause for concern rather than confidence about the future direction of stock prices. Contrarians who look for opportunities to bet against the crowd, not with it, feel that when people say they are hopeful about stocks, many have already finished buying--a bad omen for future performance.

“This number doesn’t mean you should throw your portfolio out the window, but it suggests that you’re getting close to the end of this rally,” said Ken Tower, a technical analyst at UST Securities Corp. “We thought this rally would continue until everyone jumped on board.”

The percentage of advisors who said they foresee a short-term drop, or “correction,” in stock prices rose to 14.7% from 14.5%. A short-term drop is typically considered a decline of about 10%, often in less than a year.