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Sentiment Addendum: NAAIM, Gold, DSI & Insiders at Trader’s Narrative

As an addendum to last week’s sentiment overview here are some other market sentiment related developments including the NAAIM survey of manager sentiment, DSI, corporate insiders, TSP sentiment, and gold sentiment.

NAAIM Survey of Manager Sentiment
The recent survey of active manager sentiment shows a surprising lack of enthusiasm for the recent stock market rally. Even though the S&P 500 index is above its April 2010 highs, NAAIM sentiment is significantly lower:

NAAIM survey of manager sentiment Nov 2010

Last week’s NAAIM survey showed that active managers were on average positioning their portfolios to be 70% long the market. This is higher than 57% long in late October but it is still lower than where they were at the April top (85%).

Daily Sentiment Index
The DSI for the S&P 500 index pushed even higher last week to 94%. It is now slightly higher than the April 2010 levels and approaching a 4 year extreme. For a chart, please see previous sentiment overview.

TSP Sentiment
The TSP Sentiment survey (of retail investors) spiked to 3.04 bulls for every 1 bear. That is the highest level of bullishness since late December 2009:

TSP Sentiment survey Nov 2010

Corporate Insiders
Insiders are taking advantage of these higher prices to unload a truckload of shares. We are just shy of major levels that marked inflection points in late 2009 and April 2010:

insider transaction ratio Nov 2010

Gold Sentiment
Today’s Op-Ed piece by Robert Zoellick, the president of the World Bank, got a lot of media attention. If you happened to actually read his words, instead of all the thousands of articles written about what he wrote you’d discover that he mentioned gold in passing after a list of five proposed strategies ahead of the G20 meeting.

But of course, his casual mention of gold got all the attention. His remarks however were aimed at averting what is shaping up to be a competitive currency devaluation scheme:

Fifth, the G20 should complement this growth recovery programme with a plan to build a co-operative monetary system that reflects emerging economic conditions. This new system is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi that moves towards internationalisation and then an open capital account.

The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.”

Gold celebrated that celebrity endorsement by making another new high today at $1409 (as did silver at $27.74). So let’s take a look at where its sentiment stands after such a powerful showing:

The Gold Miners Bullish Percent index stands at 90% meaning that 9 out of 10 gold stocks in that index are in a buy signal (from a point and figure formation). This is the highest level for more than three years. As you’d expect, such an extreme overbought level is indicative of a top:

bullish percent gold miners index Nov 2010

But as you can see from the chart above comparing the Gold Miners Bullish Percent index with the price of gold, at times that can be a rather short-term top. From September 2009 to December 2009 gold pushed ahead in spite of a rather high Bullish Percent index until finally succumbing to a parabolic climax. I suspect we’re setting up for yet another one of gold’s now rather predictable parabolic blow-offs.

Assets in the Rydex Precious Metals fund have ballooned as retail traders chase the hot momentum trend in gold. As of today, the total assets are $313.5 million. This Rydex indicator doesn’t catch all major tops. For example, the level of assets was surprisingly muted in March 2008 just as gold was making a parabolic top. The current participation level is not far from the previous demarcation which has usually indicated a top for the past 5 years:

Rydex precious metals assets NAV Nov 2010

If gold follows the script of a blow-off parabolic move, as it has multiple times before, then the assets will increase even more. During the September-January 2010 period they remained “excessive” as gold continued to rally into its top.

Having said that, the current level for gold definitely skews risk towards the long side. While gold may be able to push ahead with further impressive gains, a parabolic move would dictate that all that and more will be unwound within a very short time.

Looking at other sentiment data we also see that there isn’t a clear picture of extreme bullish sentiment, yet. MarketVane’s Bullish Consensus for gold has managed to climb to 79%. This is relatively high but not yet at an extreme level. The Hulbert Gold Newsletter Sentiment index has also increased recently but to just 55%. To put that in perspective, at previous major tops it was much higher. For example, in December 2009 it reached 68%, in July 2008 it was 64% and in March 2008 it was 65%. So we still have some room to run before reaching excessive bullish levels.

Finally, Central Gold Trust (GTU) has moved back into a premium (3%) from a small discount a few weeks ago. Considering the fact that gold has been lunging forward, making new highs, the premium is rather meek. To put the current figure in perspective, there were multiple days in the summer where premium went above 10%. That coincided with the top in gold prices at about $1250 (in May and June 2010). So all things considered, this level of premium is rather shockingly low.

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7 Responses to “Sentiment Addendum: NAAIM, Gold, DSI & Insiders”  

  1. 1 Minion


    I appreciate your consistent posting of this sentiment data. It seems not all sentiment surveys are the same……. EWI, for example, has been posting the most pessimistic surveys around. Bearish bias seemed to have influenced their wave count on the latest short term market action - they mistook this recent blowout rise as wave C, not 3….. and finally corrected the mistake after it exceeded the April high. :(

  2. 2 PEJ

    Thanks Babak for this useful addendum :)

  3. 3 Avi

    Gold and more importantly, silver and palladium are just flying. This is a parabolic move indeed and the risky juniors are starting to follow (not all but a good portion)

    i think looking at juniors is a good indication of sentiment, especially since there are so many of them

    good post babak

  4. 4 wyatt earp

    Anybody pay attention to what happened in silver today? About as clear a buying climax as you ever see. Huge daily range, huge volume, price closed near lows after a parabolic rise. Looks like a good short setup. Wyatt

  5. 5 Babak

    wyatt, yes, a classic and unmistakable reverse hammer candlestick. And very similar looking candle in gold.

  6. 6 Tiho

    Last nights rally in Silver was totally amazing to watch. The level of bullishness is now completely insane! By the end of the night all the “Johnny-Come-Latelies” must have been completely disappointment to see a huge reversal in prices. It looks like Silver could have complete a strong reversal pattern ina blow off top manner. I think at one point Silver was trading three standard deviations above its 50 day moving average and over 20% in price away from it! It’s finally playing catching to Gold…

  7. 7 Alex


    the data (chart) coming from Rydex Assets did U know if they are available online for free somewhere ?

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