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Tuesday, July 24, 2012

Odd sentiment survey data

The sentiment survey data was a little strange last week.  Lets start with the NAAIM active money manager survey.

This survey went from 63 to 67 in the last week.  Notice it is higher then it was back in May before the mini meltdown.  We are below the peak from earlier in the year and well below peaks from last year.  Should the market continue up there is still some fuel left here.  The flip side to that is that we are at levels that can cause a big move down if the market heads south.  Notice we are very near the same level we were last year right before the big crash.

Check out the Nova/Ursa survey.

This one is kind of interesting as traders have pulled money out on the last bounce.  It seems like something may have spooked people a few days ago.  This one is pretty much like NAAIM.  There is some fuel for the upside if the market continues up and they pile back in.  However, it is still well above bottoming levels so there is also fuel for the down side should the market head that way.

Check out the AAII sentiment survey.  This is from individual investors.  These people are a little more sophisticated then many people would believe.  Many think that individual investors are the so called dumb money.  I have watched this survey over the years and I can say they usually get with the program reasonably early on for the big moves. Check out this chart from the last few years.

Overall they did not do all that bad.  Last fall they flipped to more bulls in October and stayed that way the majority of the time throughout the entire rally.  Just like last year, the total number of bulls started dropping before the market topped out.  What I find interesting is that there have been consistently more bears then bulls this entire rally off the early June low.  This is clearly contradictory to what the active money managers think in the NAAIM survey.  It is very odd that the number of bulls is actually lower then at the June lows. Since the market was rising over the last week and the number of bulls plunged, it had to be something in the news that has people spooked.  We can see the same affect in the Nova/Ursa ratio as it dropped suddenly last week also.  It would seem that something happened that bothered everybody but the money managers in the NAAIM survey.

Shaeffer's Research has this to say about such a long streak of more AAII bears then bulls.

Schaeffer's Quantitative Analyst Chris Prybal looked into the historical data, and found this is the sixth-longest such streak since 1987. Looking at the previous five times this has occurred, after 10 straight weeks of more bears the bulls, the SPX is up an average of more than 5% over the next 30 trading days -- and it was higher all five times over the next 30-day period. 

  • Ending on 12/28/1990, we had a streak of 22 weeks where bears outnumbered bulls.
  • Ending on 8/17/2006 and then again on 3/20/2008, we had streaks lasting 14 weeks.
  • Ending on 10/23/1992, we saw a streak of 13 weeks.
  • Ending on 8/27/1993, we faced a streak of 12 weeks.

The good news is there is high odds of a 5%  move up in the first 30 days after the streak ends.   The bad news is we don't know exactly when the streak will end.  It is still another 12 weeks to the end of the longest recorded streak.

Yesterday's big gap down and negative cross overs on the breadth charts suggest we go lower for now.  The money managers are caught pretty heavily long so if the market keeps going south there will be a cascade as they bail out.


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