Wednesday's session demonstrated again that a high level of bullishness isn't always a great contrarian indicator or market-timing tool. Another rise in bullishness in Chartcraft.com's Investors Intelligence survey produced barely a ripple in the stock market. Traders were more concerned about company warnings and lowered guidance but even amid that, major averages ended mixed and well off their worst levels of the session.

The Investors Intelligence survey showed bullishness among newsletter writers rose to 60.2% from 58.7% a week ago while bearish sentiment declined to a 16-year low of 16.1% from 16.3%. The spread between bulls and the bears is wider now than at any time during the 1990s, according to Phil Erlanger of Erlanger's Squeeze Play.

"Such enthusiasm is usually seen after the market hits new highs," Erlanger wrote. "Granted the market is well off of its lows, but the commitment to the market now in force means the vast majority has bet on a hearty economic recovery. Any failure on the part of the economy to strongly improve will be a big problem for the bulls in the long-run."

Granted, Erlanger has been skeptical about this rally for some time, as reported here. Interestingly, even some folks previously upbeat about the market are becoming more cautious.

On Tuesday, Morgan Stanley strategist Steve Galbraith issued a take some money off the table call. On Wednesday, Scott Bleier, founder of HybridInvestors.com, went a step further, writing about how the rally ends and, by extension, when.

To be sure, Bleier doesn't think the market is about to plummet, suggesting quarter-end window dressing -- the legal practice of fund managers buying more shares of names they already own to secure better closing prices for a given period -- will likely keep shares afloat until at least the end of June.

"The key will be when the Federal Reserve removes the jumper cables," he wrote. "When they cut rates next week, bond yields will have a 'sell-the-news' response and go higher." (Yields went higher for a third-consecutive session Wednesday as the price of the benchmark 10-year note fell 26/32 to 102 8/32, its yield rising to 3.36%.)

Bleier's scenario presumes any rate cut next week will be the Fed's last in its historic easing cycle. A big assumption, yes, but that's the theory. If the Fed defies expectations and doesn't ease -- highly unlikely given current fed funds futures' indications -- then Treasury market participants will infer the Fed sees stronger economic growth ahead and yields will also rise, he surmised. "So the Fed is damned if they do and damned if they don't."

In addition to curtailing economic growth, higher bond yields mean more competition for stocks, which might induce a desire among equity traders to lock in profits, Bleier concluded. The time frame for the "great rationalization" by the market could occur as early as the week after July 4, he suggested.

For the record, Bleier was an early adopter of the rally, having recommended tech names such as Macromedia ( MACR) in January and utilities such as Allette ( ALE) around the March lows.

Although he's gotten more cautious as the Dow approached 8500 and then 9000, he acknowledged Wednesday "this rally has been, in actuality, one of the best rallies in the past decade -- simply because it is so broad." (On Wednesday, declining stocks led advancers in both Big Board and over-the-counter activity, a rarity in recent trading.)

Given that, what's curious is "everybody" is seemingly asking when the rally ends, not what keeps it going. In sum, bears are sticking to their guns and bulls are starting to waffle, which provides a far different message than the II data.

Blow By Blow

As with the persistent weakness in the CBOE Market Volatility Index -- the VIX fell 0.8% to 21.60 after trading as high as 22.67 intraday -- the aforementioned sentiment survey was not enough to knock down shares very far on Wednesday.

The Dow Jones Industrial Average fell 0.3% to 9293.80, a decline was largely attributable to weakness in Eastman Kodak ( EK), which fell 10% after posting a profit warning. The S&P 500 dipped 0.2% to 1010.09, further injured by warnings from Clorox ( CLX) and New York Times Co. ( NYT).

Additionally, Bear Stears ( BSC) and Morgan Stanley ( MWD) forecast no pickup in investment banking revenue. Bear lost 3% and Morgan shed 5.6%, helping the Amex Broker/Dealer Index shed 2%.

However, both the Dow and S&P finished off their morning lows of 9232.05 and 1004.61, respectively. Meanwhile, the Nasdaq Composite rose 0.5% to 1677.20 after Oracle ( ORCL) raised its buyout bid for PeopleSoft ( PSFT) and Lehman Brothers upgraded communication chipmakers Applied Micro Circuits ( AMCC), PMC Sierra ( PMCS) and Vitesse Semiconductor ( VTSS). That trio helped the Philadelphia Stock Exchange Semiconductor Index rise 2% despite a report Tuesday evening that the semiconductor book-to-bill ratio was 0.89 in May, down slightly from April's revised 0.90.

Kibbles and Tid-Bits

In so-called other markets, crude futures fell 2.3% to $30.36 and natural gas shed 3% to $5.54 per mmBtu after the Department of Energy said inventories increased by nearly 4 million barrels last week vs. expectations for a slight decline. Gold fell 1.5% to $358.50 per ounce.

The dollar was notably strong vs. the euro, which fell to $1.1689 from $1.1797 late Tuesday. However, the greenback dipped to 117.83 yen from 118.12 the prior day.

Finally, if you've got some time on your hands, check out the latest Credit Bubble Bulletin by Doug Noland of PrudentBear.com. (Scroll down to "Contemplating the Evolution From the Way We Were to The Way It Is.")

With the saga about Freddie Mac ( FRE) seemingly fading from the headlines, Noland provides reason for continued vigilance.

Actually, Noland isn't so much worried about Freddie specifically -- noting there's not much evidence of a major accounting scandal or derivatives loss. However, he does argue that "we now are in the throes of a historic mortgage finance bubble that, like the preceding telecom debt and equity bubbles, will end in tears." (Freddie Mac, of course, being an integral component of said bubble.)

It takes a while to wade through -- Noland could use an editor if only for brevity's sake -- but if you want something to worry about, there's plenty there.

Yes, Noland has been worrying about the same subject for some time now. But people said the same thing about Prudent Bear chieftain David Tice before he became a "bear market hero," which shouldn't be confused with the
juke box variety.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to Aaron L. Task.

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