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Friday, May 3, 2013

Current sentiment picture

There was a bit of a surge in bullishness over the last week. Here is the NAAIM survey to start off with.


The survey was back over 80 again as some people plowed back into the market.  Over the last two years it has not spent much time over that mark.  Clearly these people are more optimistic about stocks this year then they have been at any time in this bull market.  Isn't that curious when the global economy is likely in a recession?  Yeah I know.  The FED is doing QE and stocks can only go up.  If the sell in May thing happens again there is quite a bit of downside fuel in this survey.  Check out this table that was also on the NAAIM web site.

The bullish and bearish columns are what the most bearish and most bullish respondents said about their market exposure.  All through April somebody said they were 125% net short.  Now that we have come to the sell in May thing, nobody was net short in the latest survey.  If this market is to continue higher it will have to be driven more by new longs then short covering.  This would also seem to make the market more vulnerable on the down side as there will be less shorts to take profits on down swings.  I find it curious that nobody was willing to make a bet on the sell in May phenomenon by being net short.  Somebody was willing to make a leveraged short bet back in April.  The last three weeks in March had nobody responding as net short either.  The market stayed in a very narrow range and made only slight upward progress.  If the market does not drop in May we might have a slow grind up kind of action similar to late March.

Next up is the II survey.


The latest survey shows a rise in the number of bulls and drop in the bears.  The number of bears is almost back down to the lowest level all year.  The bulls are still somewhat lower.  That means those in the correction camp grew in number.  On the left side of the chart we can see that the number of bears was below 20 in May of 2011 while the market was in the process of forming a head and shoulders top that led to a near 20% sell off in SPX.  Market setbacks when the number of bears gets below 20 for a while are a common occurrence. 

The next survey is the AAII.  Here is the chart.


I still find it odd that the number of bears outnumber the number of bulls with the Dow at all time highs.  This is completely the opposite of the other surveys which are geared towards more market knowledgeable people.  I suspect this is because individual investors are much more in tune with what the real economy is doing.  Some people surely look at this as a great contrarian indicator that the market is going much higher.  The trouble with that assumption is that of all the surveys I have ever looked at, this one is almost always the least bullish at tops.  Let me put that another way, it is usually the most correct survey at tops.   Are they correct now, or totally in left field.  This could be one of those times we will look back and say oh that is what that survey was indicating.  I don't really have any idea how to interpret this data.

I think the sentiment confirms what I said the other day.  The market either keeps going up from here or we have a much bigger correction then most people are expecting.


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