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Sentiment Overview: Week Of July 9th, 2010 at Trader’s Narrative

Here is the weekly sentiment overview:

Sentiment Surveys
We already looked at the sharp move in the AAII weekly sentiment taking the bears up to 57% and the bulls shrinking to 21%. So rather than rehash it, if you haven’t yet, see: “Here’s the Fear: Almost at March 2009 Levels”.

Investors Intelligence
The weekly newsletter sentiment poll created by ChartCraft shows a similar, but less extreme move. The bulls decreased to 37% and the bears increased to 34.8%. This provides a bull/bear ratio of almost 1 which is the lowest we’ve seen this sentiment metric since July 2009. But keep in mind that the survey was completed on Tuesday, a day before the short term tenor of the market changed with Wednesday’s huge rally.

NAAIM Survey of Manager Sentiment
We also looked at the NAAIM survey yesterday so I won’t repeat the analysis again. I just wanted to show a different method of charting the data that I’ve been experimenting with. It is a comparison of the weekly survey with its own rolling 13 week (3 months) moving average:

NAAIM survey of manager sentiment rel Jul 2010

I’ve found that it is usually better at finding tops and bottoms. For example, it didn’t really flag an extreme until October 2007 which was better than the straight data itself. The one disadvantage is that in late March, when sentiment did recover, it had been so depressed in the short term that the ratio spiked up to the highest level (so far).

NDR Crowd Sentiment poll
Considering the above, it isn’t surprising that Ned Davis Research’s “Crowd Sentiment Poll” (itself an aggregation of 7 different sentiment polls) has fallen to dramatically after topping out recently in March 2010:

NDR Crowd Sentiment Poll Jun 2010
Source: Liz Ann Sonders (Schwab & Co.)

TSP Sentiment Survey
Last week I made a cryptic reference to a “secret sentiment survey” and ended up with a reader quickly identifying it as the TSP Talk forum survey - teaches me for underestimating my audience.

I’m still studying the historical data for this survey but for now, here’s a chart showing how it compares to the S&P 500 index:
TSP Sentiment survey Jul 2010

AS you can see, I’ve lopped off the axis above 2 because when we have more than twice as many bulls as bears, I think the message is clear. From my superficial study of it, it seems that there is a lot of feedback loops - that is, survey participants are trying to game their own sentiment.

Rydex Traders
The Rydex traders, unlike the leverage ETF traders, are running for the hills. According to the ever insightful Jason Goepert, at, the aggregate bull/bear ratio in the Rydex universe of funds is showing an extreme in pessimism:

rydex ratio bull bear ratio Jul 2010

The Rydex Nova/Ursa ratio, a more traditional metric, is even more extreme and has almost fallen to the lowest level ever (just shy of the low achieved in March 2009).

Mutual Fund Flows
We have the complete data for US mutual fund flows for the month of June 2010. While it seemed for a few weeks as if the bond binge was over, the complete monthly data shows that it is still continuing with $24 billion flowing into municipal (tax free) and taxable bond funds.

us mutual fund flows Jul 2010

Retail investors continued to withdraw their money from US equity mutual funds. But the pace ameliorated with only $8 billion flowing out, compared to $24 billion in May. This combined with anecdotal evidence tells us that the average US retail investor is disgusted with the stock market and simply doesn’t trust it anymore.

Option Sentiment
I already covered the option markets this week, when I asked “Where’s the Fear?”. Since then, things haven’t really changed, if anything, the option markets are showing even more optimism.

The 10 day moving average of the ISE equity only call put ratio rose to 176 - which is 0.56 if we invert to get a put/call ratio. The CBOE’s put call ratio (10 day average of the equity only ratio) fell to 0.65.

Gold Sentiment
Gold has fallen below its 50 day moving average, where it hasn’t been since March 2010. I continue to see it in a strong technical pattern as it is very close to its highs, relatively neutral compared its several moving averages (that is not extended) and with a surprisingly subdued sentiment.

As a result of the shallow decline, many weaker hands have quickly abandoned gold. The Hulbert Gold Newsletter Sentiment Index has fallen again to just 9.2%. This means that the group of market timing newsletters are on average recommending their clients be long just 9.2% of their portfolios in gold. That is down from 37.8% last month and 47% in May 2010.

To find a lower HGSNI we have to go back to April 2009 (3.5%) when gold corrected 13% after hitting the magical $1000 level. This time however, gold has only fallen 5% from its recent high. As well, the Market Vane bullish consensus for gold is now at 63%. This is the lowest level since August 2009 when gold was trading at $950. Considering that gold is trading much higher and very close to making a new swing high once again, it is not probable that it would be making a major top here with sentiment so far away from extremes (Market Vane’s 90%).

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10 Responses to “Sentiment Overview: Week Of July 9th, 2010”  

  1. 1 Mike C

    Please include the gold sentiment numbers on an ongoing basis if possible.

    This time however, gold has only fallen 5% from its recent high.

    True, but gold failed to make a sustained breakout out of the recent multi-month consolidation, and I would note the MACD divergence between the December high and the recent high. Not sure if we just need alot more sideways work, or a deeper correction, but some technical analysts thing we are near a key trendline support level that must hold

    I believe gold is still in a long-term secular bull market so I continue to hold that position, but not sure what to do with trading positions. Your sentiment figures would suggest taking positions, but the technicals seem mixed here.

  2. 2 Wes


    Interestingly, the Rydex ratio is at it’s lowest point (most bearish) after the trading on Thursday the 8th. Since this includes the big Wednesday upside day as well as two additional upside days, it appears the Rydex traders aren’t buying the upside.

    This is an additional bullish development. I haven’t received the Friday data , yet.

  3. 3 phil

    could you go into treasury bond sentiment polls and market tops/bottoms…are we there on a short term or long term basis?

  4. 4 DoctoRx

    In secular bears, are these negative sentiment indicators truly contrarian until markets get far below their moving averages? It would appear that there were many extreme sentiment numbers all the way down in the 2008-9 bear.
    After all, it takes bears to turn a bull move into a full-fledged bear.

  5. 5 Naresh Kumar

    Great work Babak.
    The NDR Crowd Sentiment Poll chart is dated (early June). It would be interesting to see how it is now.

  6. 6 hotairmail

    Congrats. Just in case you missed it - you are now being quoted by Bloomberg

  7. 7 Wes

    The OEX options buyers, the smart option players that are usually right, continued their bullish behavior this week. The 15 DMA of the OEX option P/C is now 76.7, well below the very bullish level of 80.

    For the week, these option buyers purchased an average of 64 puts per 100 calls. This also happens to be Friday’s result.

    There have now been 12 consecutive trading days where they purchased more calls than puts, a most bullish sign.

  8. 8 Fxtreadstone

    Hi Babak,

    Just of note, last week I read a report disecting the NAAMI into growth vs value, it charted from the last 10 years the movement in/out of each one relative to the S&P, amazing correlation when selling of growth relative to value compared to the major average, it may worth looking into, loooooooove your blog my friend.

  9. 9 Babak

    fxtreadstone, thanks for the kind words. Are you sure it was the NAAIM survey? because it hasn’t been around for 10 years. Maybe you’re thinking of something else. In any case, I’ve sent you an email and if you could fwd me the study, I’d appreciate it.

  10. 10 FXtreadstone

    I’m not 100%, It was definitely a study of mutual fund flows, I’ll find it an email you.

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