Neutral is the wrong word. Regarding the U.S. stock market, I’ve been feeling schizophrenic.

Last Thursday is a good example. As I walked back to the kitchen after lunch, the image of a massive bull market in stocks flashed before my eyes. I even pictured a chart of the Nasdaq soaring above its old bubble top. The timescale along the bottom ran past 2010.

What brought on this daydream? It was the bullish research report I read on my lunch break.

An hour later, I read something else... by another analyst I pay attention to.

The piece was bearish on the U.S. stock market. And as fast as my mood turned bullish after lunch, it changed back again. All of a sudden I was bearish on stocks. October 1987 and the great crash leaped into my head. Could it happen again? Yes it could, I thought. The Dow fell by 23% that day.

It’s a pattern I’ve wrestled with every day this week. One moment I felt exuberant, the next I was all gloom and doom... until clarity hit me like a brick in the face yesterday...

I have found conviction and I know where I stand. But before I tell you what I discovered, you need to know these facts about today’s market:

1) Market sentiment is extremely bullish.

Financial newsletter writers – using the Investors’ Intelligence Poll as our measure - are as bullish as they have been in nearly 20 years. The Vix “Fear Gauge” is 11.04, close to its lowest level in 10 years. Bullish call option activity is swamping bearish put option activity. The put/call ratio has been this low only three times in the past two years.

And look at this headline from Yahoo! Finance, yesterday: “The stock market, often considered a barometer of how investors feel about the economy's prospects, is now reflecting an optimism not seen in years.”

2) The market has more momentum than a freight train

The Dow is over 11,000 for the first time since 2001.

Apple (AAPL) and Google (GOOG), the darlings of the current rally, both hit all-time highs this week. Apple is over $80, and Google is over $470.

The Nasdaq had risen seven days in a row before yesterday’s slight loss.

Sentiment is one of the best ways to predict stock movements. When it reaches an extreme, the market almost always forms an important turning point. As contrarians, we aim to sell our stocks when everyone is optimistic and we try to buy them back when there’s blood in the streets.

In real life, this is hard to do. It’s easy to spot optimism, but it’s hard to judge the extreme. Optimism is stubborn. Once a trend gets started, it can run for a long time. This, in a nutshell, was the source of my conflict.

In conclusion, my position is this:

Don’t try to catch this trend... but don’t try to fight it either. Do nothing. The best things in life come to those who wait, so wait for the trend change to reveal itself.

Of course, keep reading DailyWealth, and you’ll be right on the money.

Good Investing,

Tom Dyson