Sentiment Update: Still Bullish

Bullish Sentiment remains high. On average, sentiment readings at these levels have not been favorable  for equity markets.

Both investor sentiment surveys I follow show bullish sentiment remains wells above average despite a drop this week. The NAAIM (active money managers) survey for this week showed a decrease of 6.1% in bullish sentiment while the AAII (individual investors) survey showed an decrease of 1.6%.

This week, active managers have, on average, a 71% allocation to equities. This is down from 77% last week. The median allocation fell to 85% while the top quartile of active managers have an allocation of 100% or greater to equities with the bottom quartile having a 50% or less equity exposure. The eight week moving average is now at 74%. The 71% bullish allocation, while lower than last week, is still high by historical standards.

The NAAIM number measures current equity exposure (0% would be all cash, 100% fully invested). Additional detail can be found here.

Individual investor’s bullish sentiment stands at 51% this week from 52% in the prior week. Bearish sentiment rose to 29% from last week’s reading of 23%. The Bull-Bear spread is at 22%, well above the series average of 9%. The eight week moving average of bullish sentiment increased to 53%.

Finally this week we look at one additional seemly contrary indicator; the equity put/call ratio. Since late 2003, when the 20 day rolling average put/call ratio has fallen below .55 (roughly 1 standard deviation from average) the average 30 day returns are -2.2% (-0.7% median) versus a series average of 0.2% (0.8% median). The current 20 day average put/call ratio is .52. The last time the ratio dropped below .55 (April ’10) the market sold-off roughly 14% over the next month-and-a-half.

Investor sentiment remains at historically high levels. Bullish sentiment in both surveys is greater than one standard deviation from average.

For analysis of the subsequent equity returns based on sentiment surveys please see the flowing links. AAII research here and NAAIM research here.


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