The Investors Intelligence report from last week showed that the bearish percentage has continued to fall in recent weeks. The reading for last week declined to 20.4 percent, which is the lowest reading since last May.

Since early October, the bearish percentage has been cut in half after reaching as high as 46 percent.

To give you an idea of how sharp this decline has been, the previous peak in the bearish percentage came at 37 percent in August 2010. It fell to the 17 percent range the following April.

You may recall that in April 2011, the S&P hit its highest level in almost three years before entering into the three-month bearish period that took it down almost 20 percent from the high to the low.

Fortunately, the bullish percentage took a dip over the past month as well and this prevented the ratio from jumping too much. The ratio is still at 2.1 to one, but it has yet to reach the three to one level that have hit before more serious market pullbacks.

I remain cautious about the overall market due to the low bearish percentage and the overbought levels of the main indices, but the market doesn’t look like it is in for a prolonged bearish period.

A small decline over a few months would likely change the sentiment picture and the overbought/oversold levels would drop to more neutral levels.