When nearly every investor, including professional money managers, shares the same sentiment about the stock market, expect a price turn in the opposite direction.

The reason why is that there’s hardly anyone left to keep an existing trend going.

One sentiment gauge is the cash levels of equity mutual funds. Of course, when cash levels are extraordinarily low – meaning, mutual fund managers are nearly fully invested – that’s a sign of major bullishness, and vice versa.

Let me show you a little history of this measure – as I take you back to our July 2007 Elliott Wave Financial Forecast. Here’s a chart and commentary:

[An] important measure of sentiment that is showing a historically unprecedented level of optimism is the percentage of mutual fund cash levels relative to assets. Mutual fund cash dropped to just 3.6% in March [2007.]

As we know, just two months after that analysis – the S&P 500 topped in October 2007 and went on to plunge more than 50% into March 2009.

All this is mentioned because it’s currently relevant. Here’s a chart and commentary from our just-published June Elliott Wave Theorist:

[In] 1991, the average ten-year cash level [of mutual funds] rose to just shy of 10%. After that, mutual fund managers stopped waiting for bargains. For the past 33 years, even through the bear market and Great Recession of 2006-2012, cash levels have decreased on a long term basis, reaching the 2.8% mark, an all-time low.

Yes, the widespread expectation is for stocks to go higher, as reflected by this May 23 Barron’s headline:

Don’t Sell in May and Go Away!

Indeed, short-sellers – those who aim to profit from falling prices – are worried, as reflected by this June 4 Bloomberg headline:

Short Sellers Fear Extinction in a Relentless Stock Market Rally

Of course, we know that even doggedly persistent bull markets eventually end.

Our Financial Forecast Service – which includes the Theorist – provides you with our in-depth analysis on this topic. Just follow the link below to learn more.