Sentiment Update: Slight Decline but Still Bullish

Investor sentiment declined slightly last week but remains very bullish. The NAAIM (active money managers) survey for this week showed a decrease of 2.6% in bullish sentiment while the AAII (individual investors) survey showed decrease of 2.8%.

This week, active managers have, on average, an 84% allocation to equities down from 86% last week. The median allocation rose to 97% while the top quartile of active managers have an allocation of 100% or greater to equities with the bottom quartile having a 70% or less equity exposure. The eight week moving average is now at 79%. The 84% bullish allocation is more than one standard deviation from the historical average.

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 fell slightly to 47% this week from 49% in the prior week. The sentiment reading is within one standard deviation from average with two straight weeks of declines.

Bearish sentiment dropped to 26% and the Bull-Bear spread is at 21%, well above the series average of 9%. The eight week moving average of bullish sentiment is at 50%.

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 .558, just above the range. The ratio continues to steadily increase after bottoming in December of last year.

Overall, investor sentiment remains high. NAAIM bullish sentiment readings are one standard deviation from average, AAII sentiment is just below the “extreme” bullish mark and option buyers are still bullish.

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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One response to “Sentiment Update: Slight Decline but Still Bullish

  1. Pingback: Sunday Link-Fest and Consuelo Mack Interview | ValueWalk.com

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