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Wednesday, September 26, 2012

A little more sentiment

I have not seen this one before.  Check out this chart.

Source: Zero Hedge

The 'risk appetite index', an amalgam of the Citigroup Macro Risk Index, Westpac Risk Aversion Index and UBS G10 Carry Risk Index Plus. The herd simply follows prices – click for better resolution.

We are at the highest levels on the chart.  Major sell offs don't necessarily happen right away though.  Definitely not a low risk time to buy.

Here is a variation of the the Nova/Ursa ratio I showed the other day that did not make sense to me.  I think there might be a data error or something with the site I get it from.  This one looks more reasonable to me.

Source: Zero Hedge

This is a nicely done chart showing us the underlying data that makes up the ratio in the bottom part of the chart.  The summer decline shows people pulling money out of the long fund without much addition to the short fund.  That is in contrast to the last two years where there were significant spikes up in the bear fund. I guess everybody isn't bearish are they.  The long fund has the most assets since this bull market began. 

There was an interesting thing in the NAAIM data lately I did not know about.  Check this out.
Source: Zero Hedge

In connection with the NAAIM survey, there was an interesting occurrence in the late July summary. A list of the weekly responses is depicted below. Note the two columns labeled 'bearish' and 'bullish'. These show the extremes recorded at every weekly survey, this is to say the net positioning of the most bearish and the most bullish manager. On July 25, the most bearish manager was flat, while the most bullish manager was 200% long:

At the time this reading was recorded, Jason Goepfert of sentimentrader created a statistic that shows all the previous occurrences of this combination and the subsequent market performance over short to medium term time horizons. Note that the relatively low mean recorded in this particular week may weaken the message of the signal somewhat, but his is still an interesting statistic:

There is an awful lot of red in the table above.  The only positive outcomes 6 months later were from instances in 2009 as the bull market was just beginning.  The NAAIM survey started in 2006 so there is not a lot of data, but this table should give bulls something to think about.  I will be watching for similar instances in the future.  

Despite what the media would have us believe, there is a lot of optimism out there.  In the face of poor fundamentals you have a recipe for a big change of direction.  I guess we will see what happens.


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