Here is this week’s sentiment synopsis:
The weekly AAII survey of American retail investors shows a surprising drop in bullishness. While the market had only gone sideways by the time the survey was taken, that was enough to reduce by 10% points the number of bulls to 38%. Those expecting lower stock market prices increased to 34%. The result is that we have a bull ratio at 53% which is right in line with the average amount of bullishness the market is used to. The level I’m watching for this sentiment indicator is 68% or higher (that is, the percentage of bulls relative to bulls plus bears).
According to the other survey question, American retail investors have slightly less equity allocation in their portfolio than they have on average in the past:
Source: Fusion IQ
Barry believes that this is a positive sign:
The fact that individual investors are not grossly over allocated to stocks at this point suggests they still have a fair amount of liquidity to invest. As long as liquidity remains favorable stocks should not experience any deep setbacks.
That is true for the short term but for anything beyond that we need the participation of retail investors. And as we’ve already talked about at length, they have abandoned the equity market in favor of the bond market. For the first 2 weeks of April the trend continues with inflows of just $2 billion for domestic mutual funds and $12 billion for bond funds.
In contrast to the retail investors, the average stock market newsletter editor tracked by ChartCraft is now much more bullish on the market. II’s bullish sentiment increases to 53.3% from 51.1% while bearish sentiment decreases to 17.4% from 18.9%.
This survey was conducted early in the week so it bears noting that this level of optimism was before the market made new yearly highs. As I mentioned before the level I watch for this sentiment indicator is a ratio of 3:1 for bulls relative to the total of bulls and bears. With this week’s result we are once again above that ratio. The last time the bull ratio was this high (or higher) was in at the start of the year - just before the market stumbled.
Active managers returned tentatively to a more bullish posture. The average manager is now 81.64% long the market. This is third in four weeks that the average market exposure has been above 80% long and it is just under what we saw at the beginning of the year.
According to an online poll conducted by Commodity Online, 93% of respondents expect gold prices to fall. While the survey had a very large sample size, I’m not sure about the quality of it (especially since it was done online). The consensus was that since investors are once again comfortable with risk and since equity markets around the world are strong, there is going to be less and less demand for gold.
As I’ve shown again and again, gold is not a safe haven. It didn’t protect anyone in any stock market crash. It is just another trading vehicle. Gold stocks especially tend to move in line with the broader market. The real safe haven of choice again and again has been short term US government bonds.
The 10 day moving average of the ISE equity only call put ratio closed at 231
lower than 249 from last week but still very high
CBOE equity only put call ratio closed the week below 0.50 - meaning that once again, more than twice as many calls were traded as puts. The 10 day moving average is slightly lower at 0.47:
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