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Friday, May 18, 2012

Sentiment surveys

There are several sentiment surveys I follow.  Based on the size of the decline so far, sentiment seems to be way too bullish.  The first one is the II survey.  This is a survey derived from market news letters.  So this comes from somewhat well informed sources.  It is purely an opinion survey though, not based on actual money.  However, it is a great contrarian signal at times.  Normal bull market corrections end very soon after the bears become more numerous then the bulls.  Once the bulls cross back above the bears the market is generally on its way higher again.  You can follow it yourself here

Here is the current chart.

Despite a 7% pullback in SPX the bears are still trending down.  In fact last weeks survey was the lowest number of bears all year.  This is showing considerable complacency.  It does not look like we are anywhere near the final low yet. 

The second survey is the Rydex Nova/Ursa Ratio.  This data is based on actual money as it is the ratio of assets in the bullish Nova fund vs the bearish Ursa fund.  The Rydex family of funds are often used by traders as Rydex is one of the few fund families that does not frown on frequent switching of assets.  This indicator is really a good indication of what active traders are doing with their money.  You can follow it here

Here is the current chart.

The higher the number the more bullishly positioned traders are.  That also means there is greater potential for decline.  The upper range at tops is usually in the .40-.60 area.  As you can see on the chart above we got to the top of the normal range.  Major lows usually come with the indicator in the teens.  As you can see we were down to .15 last fall.  Currently at .46, traders are still heavily long despite the size of the decline.  There is still considerable down side potential if these traders pull out.  I would also rate this indicator extremely complacent.

The next survey is NAAIM which I wrote about recently.  Here is the link and the latest chart.

The actual number is 58.71.  As you can see on the chart that is still well higher then it was on 4/25 even though SPX is considerably lower.  More complacency and more down side fuel if these guys start to panic.
Look at the difference between now and June of last year.  SPX made a similar swoon down, but the survey number was much, much lower.  That decline was caused by real selling.  This decline appears to be happening because of a lack of buyers more then heavy selling.  People unwilling to buy is really what causes true long lasting bear markets.  We will have to see if this continues or not.

The NAAIM and Nova/Ursa data show that people are still heavily long with real dollars.  The II survey indicates a serious lack of worry on the part of market news letter writers.  SPX closed below its daily 200 EMA so this is a serous pullback.  The lack of fear is pretty startling in the face of serious technical damage.  Especially after the crashes the last two years.  I have heard things like it is not going to happen three times in a row or this is an election year the president will do everything to get elected.  The FED will do QE3 and save the market.  I believe there is considerable down side risk because the global economy is still slowing.
I don't believe the FED can stop that.


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.