It is the Best of Times, or The Worst of Times - Depends Who You Listen To

There were a couple of articles in this morning's Financial Times that did a good job, I thought, of summarizing where we are in the market at this juncture.

Bullish sentiment is widespread. According to the FT, bullish sentiment as measured by the American Association of Individual Investors, is at its highest level since 2005.

The "Trading Post" column (also in this morning's FT) notes that the SP 500 has risen by +8.7% since the end of November 2010. Since the start of September 2010 (i.e. right after Bernanke's talk at Jackson Hole in Wyoming, where he discussed the second round of quantitative easing), the market is up +23.2. Money is now moving back into domestic equity mutual funds, after spending most of last year heading towards other sectors.

The market's relative strength index (which technicians call RSI) is now around 77; normally anything over 75 is considered a sign of an overextended market. And the Vix index, a measure of expected market volatility that tends to rise in nervous markets, is just around 15, which is lowest level since July 2007 (or right before the market hit a record high in October).

And yet, the fundamentals are mixed at best.

Wall Street analyst earnings forecasts are becoming less bullish on the companies they follow. Quoting from the FT:

Figures from Birinyi Associates, a research firm, show that the ratio of upgrades {to earnings} to downgrades of S&P500 companies by analysts has been declining since July, when upgrades peaked versus downgrades. From January to July last year, there were 425 more upgrades than downgrades. Since then, there have been 140 more downgrades than upgrades.

Finally, this weekend's Barron's Roundtable was full of bearish pronouncements from its distinquished participants. Here's a sample quote (courtesy of the blog Zero Hedge):

Marc Faber: “If you measure the stock market not in dollars but gold, it is down 80% since 1999. I no longer regard the U.S. dollar as a valid unit of account. People shouldn’t value their wealth in dollars because one day, in dollars, everyone will be a billionaire."

Bill Gross one-upped that one: “We are looking at a currency that almost certainly will depreciate relative to other, stronger currencies in developing countries that have lower levels of debt and higher growth potential. And, on the short end of the yield curve, we are looking at creditors receiving negative real interest rates for a long, long time. That, in effect, is a default. Ultimately, creditors and investors are at the behest of a central bank and policymakers that will rob them of their money.”

FT.com / Equities - Conditions always less febrile before a fall