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Friday, February 1, 2013

Current sentiment picture

Rampant bullishness.  I believe this is the most complacent I have ever seen the market.  Lets start with the NAAIM survey.


This weeks reading of 104 is the highest in the survey's history that goes back to 2006.  There was a 100 reading back in 2007.  Here is the SPX chart from that time period.

Those green lines are on the chart from current price action.  It is kind of funny that it happened to line up with that Feb. 2007 high.  Over the course of that sell off, the NAAIM number went from 100 to 52.  It was just a pullback on the way to higher prices though.  The most bearish respondent in the current survey is a 60 reading.  This is the first time that number has been above 0 since this bull market began in 2009.  None of the respondents were net short or even close to neutral for that matter.  At the 100 reading in 2007 the most bearish number was 50.  The potential for a sharp pullback does exist to say the least. 

Here is the II survey.


This survey retains the 30 point spread between the bulls and bears that is common at tops.

Next up is the AAII survey.


The number of bulls dropped a bit this week from 52 to 48%.  It is not unusual in this survey to have the number of bulls start to drop before the market peaks.  Unlike most surveys the market going up does not always make them more bullish.  This survey often starts to turn before turning points in SPX.  Is that the case this time?

Here is an interesting chart that I had not seen before.


Risk appetite is the highest level since Jan. 04.  That reading was in the first year of a new bull market, not approaching the end of year four as we are today.  Here is the SPX chart from that time period.

SPX spent the Jan. to March 2004 period forming a triple top and ended up correcting into Aug. of that year.  By that time, the risk appetite was well of the highs.  The mini crashes in 2010 and 2011 started from considerably lower risk appetite readings then we have today.

Here is another chart I have never seen before.


There are four other bars down in the vicinity of the latest reading.  Here is a weekly chart of SPX marking what happened.  The numbers are the NAAIM survey numbers at the time of the market tops.

There is a variety of outcomes here.  All but the Nov. 2010 pullback traded under the weekly 18 SMA.  That SMA is at 1433 today.  There does not seem to be a connection between the NAAIM number and the size or duration of the pullback.  The NAAIM number and the risk appetite numbers are much higher then in prior instances.  This is also the first time that the COMPX is not at new highs with SPX.   Needless to say we did not have a negative print on the GDP at the other highs either.

On the front page of Monday's USA Today newspaper there was a story titled "Stocks Reach For The Records" and a sub title of "Analysts: Recent gains are 'rational exuberance'.  With the economy on life support and earnings slowing down is this really rational exuberance?

Everybody keeps telling me not to fight the FED.  However, the FED has always waited until the market had some type of crash before doing something.  We are in uncharted waters here.  How do we know that just because nearly everybody in the world believes the market cannot go down because the FED is printing money that it won't happen?  How often does the market actually do what everybody thinks it will do?  Nearly universal agreement in the market most often happens near trend changes.  Is this going to be one of those times?


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