I like airplane trips. They give me the time to read and think, free from phones and to-do lists. I have spent the last hour going over our lengthy investment sentiment numbers. And what I find is very interesting.

Long time readers know that I am something of a closet bear as of late. Admittedly, the Yield Curve has me nervous, as does statistic after statistic showing the economy is slowing down.

But analyzing my sentiment data, I must be in a very small group.

The Sentiment Index is a red hot 82 and rising. But delving deep into that number just shows how hot it is. At the end of the year, I was watching closely and wrote about how the large institutions were showing some weakness. They looked like they were going to roll over and lead us into a bear market.

Not today. Not yet. They have gotten just as bullish as they were bearish two weeks ago. Even more so. I cannot recall them being as excited as they currently are for quite some time. They are almost 20 points higher, as a group, than their long term average. The big boys are making big bets, and they are betting on rate cuts and tax cuts stimulating the economy. Greenspan and Bush to the rescue!!

It goes without saying the mutual funds are big buyers. Their Sentiment Index number would be over 90! They must be getting big cash inflows, and they are putting them to work. It will be interesting to see what this month's mutual fund cash inflow numbers are.

My mentor on investor sentiment, David Levin, called from Israel to tell me to look at the differential between the last hour of trading and the first hour. Long term there is hardly any difference. Lately, the last hour has been much better, almost 15 points better, than the first hour. While that trend isn't seen every day, the weekly averages show a very clear trend. 15 points is a huge differential and is very bullish.

Let's go to the sentiment numbers by market cap size. Remember, I have been telling you for almost 8 months that the buying has been concentrated in the large and mid-cap companies. Scratch that today. It seems the optimism is across the board. The small guys are having their day. This is clearly a new trend and very bullish.

The only sector that is only "mildly" bullish is airlines, as the rest of the world is anywhere from high to hot.

Finally, remember I keep telling you that we need to watch our sentiment percentage uptrends index? It is rising rapidly, and is now at 21.82. If it goes up much further, it is telling us there is a real potential for a serious upward move in the markets.

There are other numbers I could write about, but it would not make much sense to you. Levin, who is a bull today, spent an hour with me yesterday going through dozens of our indicators. Nearly every one of them tell us investors want to buy. Looking back, you can see the trends beginning to build a month ago, and they have now been established in the last few weeks. Like Peter Pan, it is as if they are going to think happy thoughts and this market is going to fly.

Finally, look at how the market is reacting to bad news. Intel comes out and says we will not be a growth stock and the stock goes up. The market is shrugging off bad news. *Sing along with me, "Rate cuts are a'coming down the track, do-dah, do-dah. Just place your bets and don't look back, O do-dah-day."

I am a market timer, as you know. Professionally, I really don't care which way the market goes, as long as our system is correctly positioned. Personally, I prefer long, as it is better for investors. We are currently long, although I must confess that I thought our system would take us short any week. I thought our indicators would turn around. But now? It may be some time before we pull our horns in. One of the reasons that I am such a believer in systems (not just mine, but systems in general) is that they take emotions and my own bias out of the equation.

Today, my advice is to not fight the tape. For whatever reason, the clear bias seems to be upwards. Let's enjoy the ride. Like my plane at the moment, I expect it will be bumpy.

I should point out for the bears among my readers, sentiment can only go so high for so long. It will change, but my bet is not this week or the next few weeks. We can speculate about why investors are so bullish, but it is just speculation. They simply are.

Sector Model

My daughter tells me the sector model has switched to Rydex Transportation from Energy Services. That quick trade ended "up" about 1.5% for the first few days of this trade. The model is trading much more frequently than usual, which shows how much froth and foam is in these markets. For sector models to make any real money, you need some sustained bull trends in a sector.

Bonds and Euros

One of my readers pointed me to the international bond fund from American Century (I believe the symbol is BEGBX). It does indeed invest in Euros. About 70% of the fund, at last reporting, was in Euros, so for those of you who want to play the dollar drop, here is a way, although not pure.

It looks like the reversal in long term interest rates of last week has stopped, and indeed, rates are coming back down, just as I keep telling you. Whatever we are down in the Target 2025 fund for the year is now quite small. I hope some of you got in last week when interest rates went back to 5.62%. That may be the high for the year.

Landing in DC, time to close the tray tables and put away the electronic toys,

Your surprisingly bullish analyst at 30,000 feet,

John Mauldin

P.S. If you like my letters, you'll love reading Over My Shoulder with serious economic analysis from my global network, at a surprisingly affordable price. Click here to learn more.

• Bonds
• Euro
• Sector Model
• Sentiment Index

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