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Thursday, July 11, 2013

NAAIM sentiment survey

This is interesting.  Here is the latest NAAIM chart.

Source

The latest number is only 47.  That is extraordinarily low with SPX back at a new high close.  This sell off has been somewhat similar to the spring of 2011.  Lets look at the SPX chart.


In the March of 2011 SPX took a dip down to its 100 SMA just like the current correction.  The low NAAIM number reported during that correction was 41.  The yellow bar on the chart marks the day the NAAIM survey came out with a number of 71.  Off that low the active money managers piled in pretty fast.  The blue arrow marks day 12 of that rally which is the same number of days we have in the current situation.  The high that day was still 6 points below the prior closing high.  SPX did not make a new closing high before a pullback that saw the NAAIM number go up to 80.  The money managers bought that pullback.  SPX made another run to a slight new high, but failed to stay there.

Today is day 12 of the rally off the 100 SMA.  The low NAAIM number reported was 34.  That was a little lower then the 41 reported in 2011, but not all that much.  However, there is a big difference on what happened after the low.  The survey came out today and it was only 47.  This is an extremely low allocation with SPX at the highs.  Active money managers have to be scared here.  They are either scared to be long or they are scared the market is going to leave them behind because they are under invested.  There is clearly money on the sidelines that could fuel the upside.  Will they chase the over bought market and put it to work? Will they sit on their hands and wait for a pullback?  Do they have a valid reason for having the allocation so low? Will they ultimately be proved right to have a low allocation? 

Since I have been watching this survey the last couple of  years this is the first time they have not piled back in early on a rally.  Something must have spooked them.  Was it the FED talk of tapering, the bond market tanking, emerging markets crashing or something else?  What these money managers do could be the key to the market going forward.  There is definitely cash on the sidelines that could be deployed.

Bob

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