Last week, Investors Intelligence reported the most lopsided bullish extreme in over 30 years, with 64.4% of investment advisors bullish and just 13.5% bearish. Likewise, the Daily Sentiment Index for both S&P 500 and Nasdaq futures reached the most extreme levels in their history.

Regardless of the condition of market internals, and even during the half-cycle since 2009, the S&P 500 has lost value, on average, when we’ve observed the combination of: 1) a bull/bear ratio of even 2-to-1, currently more than 4.7-to-1; 2) rich valuations – anything above a Shiller P/E of 18, though even the current level of 30 understates the valuation extremes here, and; 3) overbought conditions – for simplicity, let’s say an S&P 500 Index anywhere more than 7.5% above its 200-day average.

Despite the far more extreme combination of conditions at present, our immediate market outlook remains neutral, not negative, though I continue to believe that it’s reasonable to pair a flat position with a small “tail risk” hedge several percent below current levels.

Our reasons for this investment outlook aren’t new. Since we adhere to a very specific discipline, our discussion of the reasons behind any particular investment stance necessarily involves a review of the key considerations of our discipline. Presently, I can’t think of a more important discussion, because I expect these key distinctions to matter enormously to investors over the completion of this cycle.

In prior market cycles across history, the emergence of various syndromes of “overvalued, overbought, overbullish” conditions reliably warned that speculation had essentially run its course. Those syndromes helped to anticipate steep market losses even before market internals had deteriorated explicitly. Indeed, on much broader criteria, the syndromes we currently observe are identical to the ones that marked the 1973, 1987, 2000 and 2007 market peaks.

Because of that historical reliability, the methods that emerged from our 2009-2010 stress-testing exercise raised the priority of these “overvalued, overbought, overbullish” syndromes. After admirably navigating multiple complete market cycles, including two of the steepest bubbles and collapses since the Great Depression, history convinced me that certain syndromes of market conditions were sufficiently extreme and offensive that they created a barrier to further speculation. Unfortunately, zero interest rate policy and post-election enthusiasm disrupted that history, and encouraged relentless speculation in recent years despite the repeated emergence of these syndromes. In hindsight, the stupidest thing I ever did as a professional investor was to imagine that there was some limit to the stupidity of Wall Street.

That comment may not seem terribly humble, but as a dear friend and mentor once told me “There’s a difference between humility and false humility.” Sometimes you have to speak your truth if you believe it will be helpful to someone, even if others don’t want to hear it. I’ve got no antidote for those who believe that the dot-com bubble, the housing bubble, or the current “everything bubble” reflect anything but reckless speculation. As I wrote at the March 2000 bubble peak, “On Wall Street, urgent stupidity has one terminal symptom, and it is the belief that money is free.” Here we are again.

Fortunately, it’s possible to distinguish between a market that’s prone to speculation and one that’s prone to risk-aversion. When investors are inclined to speculate, they tend to be indiscriminate about it. For that reason, the best measure of that psychological preference toward speculation or risk-aversion is what I often call the “uniformity” of market internals – a signal that we draw from the joint behavior of thousands of securities of varying risk. Though we observed some early dispersion in these measures late last year (the most notable divergences currently being in interest-sensitive securities), we’ve limited ourselves to a neutral – not bearish – investment outlook here, until we observe broader deterioration in those measures of market internals.