Market sentiment is improving and investor optimism remains at elevated levels. That bullishness has helped lift the equities market and related exchange traded funds (ETFs).

Upbeat sentiment and a “buy the dip” mentality may also explain why investors were moving into an ETF tracking the Dow Jones Industrial Average on Friday despite the pullback in stocks. The $9 billion SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA), known as “Diamonds” among traders, topped WSJ.com’s list of securities that investors were buying on weakness. The list tracks stocks that fell in price but had the largest inflow of money.

Cullen Roche at Pragmatic Capitalism muses that while there is no definitive connection between the second “quantitative easing” and real economic growth, QE2 has boosted investor morale. Ever since QE2 was implemented, market optimism has been gaining momentum.

Roche notes that major surveys tally market sentiment at an “extreme” level as QE2 runs its course. [Happy Anniversary: Two Years After the Market’s Low.]

Charles Rotblut of AAII stated that bullish sentiment, expectations that stock prices will rise over the next six months, improved 1.8 percentage points to 43.6% in the latest AAII Sentiment Survey. This was the third consecutive weekly increase and it puts optimism at a seven-week high. The historical average is 39%. Neutral sentiment, expectations that stock prices will be essentially unchanged over the next six months, remained essentially unchanged for the second consecutive week at 27.6%. The historical average is 31%.

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