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Barrons= "The Elusive Correction Is Upon Us" by Michael Kahn

As the bears continue to wonder when stocks will swoon again, investor sentiment data is starting to line up in their favor.

THE LATE MIKE EPSTEIN, VETERAN TRADER and educator, once said, "Ours is not to question what should be but to exploit what is." Clearly, investors who hopped on the bull market train last month without worrying about bearish technicals or fundamentals were taking advantage of "what is."

While many skeptical analysts, including yours truly, were wondering aloud about shrinking trading volumes and blind faith in all sorts of bullish technical patterns, the rally chugged on at a blistering pace since early March.

While one weak day does not make a reversal, there are finally a few serious cracks in the foundation of the rally. They may not be enough to end the rally for good, but even the most bullish of the bulls must concede that the market has moved too far, too fast and cannot keep that pace forever.

As the rally fed on itself, it drew more believers into the fold. There is nothing unusual about such behavior as that is what drives trends. But based on several sentiment indicators, it now appears that almost everyone is a believer. When that happens, who is left to buy anew?

Last week, the American Association of Individual Investors survey reported that 48% of their members polled were bullish while only 31% were bearish. Historically, the average bullish and bearish readings are 39% and 30%, respectively, so this does present a somewhat unusual optimism on stocks.

Recall that on March 5, the percentage of bears reached an astonishing 70% just days ahead of the bottom. Despite some flaws, this sentiment reading has worked rather well.

But what is more intriguing is that the change from the July 23 readings was huge. The percentage of bulls jumped 10% while the bears dropped 11%. It was almost as if individual investors heard a bell ringing to buy.

Another sentiment survey taken by veteran futures trader Jake Bernstein, who has been trading for 40 years, shows an even frothier mood in the market. For the Standard & Poor's 500, his Daily Sentiment Index (DSI) shows a reading of 88% bulls as of Tuesday, well above the normal 60%-70% zone. Nasdaq 100 futures traders come in at 87% bulls.

According to Bernstein, this is indicative of a short-term top forming. Indeed, the index's track record over the past two years has been impressive, nailing the October 2007 top, November 2008 low and the March 2009 low. It also caught the small tops in May and June, so its warning now should hold some water.

But do all these tools designed to go against the crowd mean the rally is over? Not really. However, they do tell us that there is an elevated risk for chasing performance now and that is backed up by more familiar technical tools such as momentum. According to some of the more popular momentum indicators, such as relative strength index, the market is indeed "overbought."

Clearly, I was not on board with this rally so I admit to suffering from a short-term credibility issue right now. However, my views that the market has not been fully repaired after the great bear market of 2008 have not changed. As I wrote in this column as far back as October of last year, there will be big ups and downs likely into late this year, if not next year, so the door remains open for a major decline.

For me, the low has indeed been set. And while I grossly underestimated how high the current rally could continue, I do see the market giving investors one more major scare before the excesses of the last bull market are truly washed away.