During the last month, I have reported on how some of the sentiment indicators are reaching extreme readings in optimism.

On Nov. 16, I pointed out how option traders were adding more calls than puts.

At that time, the 21-day moving average on the CBOE Equity Put/Call Ratio was at 0.58. The indicator has continued to slide lower and as of last Friday the 21-day was down to 0.56.

On Nov. 23, I pointed out that the Investors Intelligence report showed a spike in bullish sentiment as the bullish percentage jumped above 55 percent. Last Wednesday, the bullish percentage jumped to 56.2 percent which is the highest reading in the last two years.

The concerning part is that the optimism continues to grow while more than 65 percent of the stocks in the S&P are overbought on both the weekly and daily charts. This is based on stochastic readings above 70.

When stocks are overbought and overly loved, I recommend proceeding with caution.