Wrapping up the week, here is the weekly sentiment overview for the markets:
The weekly sentiment survey measuring the mood of the retail investors from the American Association of Individual Investors shows that they are basically neutral. The proportion of those believing the stock market would be higher in 6 months time fell 8% points to 34.5%. The pessimists increased slightly to 32.43% bringing the bull ratio to 51.5%. That is inline with the 3 year average.
After weeks of sliding, the Investors Intelligence sentiment staged a recovery with the bulls increasing from 37% to 41.1% and the bears down slightly from 32.6% to 31.1%. This isn’t the first ray of sunshine to fall on the II as it attempted a similar move higher a few weeks ago. But this recent move is the largest increase in bullishness since February 23rd, 2010 - the bull:bear ratio increased from 1.13 to 1.32.
Rasmussen Investor Confidence
Rasmussen Reports polls US citizens for a continuous Consumer Confidence survey. The chart below, courtesy of McClellan Financial, is the subset of those identified as “investors” - those who have $5000 or more in investments (bonds, stocks or mutual funds):
Investor confidence, as measured by this poll, has fallen the lows in May, it is at a four month low. According to Rasmussen, 70% of US adults believe that the economy is in another recession.
NAAIM Survey of Manager Sentiment
The recent NAAIM survey shows active money managers sharply increased their portfolio’s long exposure this week. The mean NAAIM Sentiment jumped from 30% to 54%. The average active manager in this survey is now long the stock market with more than half of their portfolio:
The median NAAIM Sentiment exposure also increased from 37.5% to 50%. Not only is this a significantly more aggressive posture, it is also juxtaposed with the fact that while the active managers in this survey became more bullish from last week, the market actually fell slightly during the interval (from 1116 to 1092 on the S&P 500 index).
According to a recent survey by the ISI Group, CFO’s at US corporations are planning to increase capex and labor spending from 6 months ago. Since November 2009, almost twice as many CFO’s are planning to increase capital spending.
This level of planned expenditure is the highest level since 2005. Considering the massive pile of cash sitting in corporate coffers, this isn’t all that surprising.
According to Mark Hulbert, gold newsletters are decidedly calm about the strength in gold and gold stocks. While gold has forged new heights, the Hulbert Gold Newsletter Sentiment Index (HGNSI) has only increased marginally to stand at 37.8%. That means that the average editor who specializes in timing the gold sector is recommending that on average their clients have a 37.8% long exposure. At previous highs in May and January, the HGNSI was 47% and 61%. But now when gold is flirting with multi-year highs newsletters who we would normally expect to be excited about the prospects of further gains are actually skeptical.
German Business Confidence
You would be forgiven to imagine that the business confidence in Germany would be scraping the bottom of the chart. But in fact it is very much the opposite.
According to the Ifo Institute’s Business Climate index, German businesses are rather optimistic:
The Ifo Institute survey is conducted monthly by asking approximately 7000 Germany companies how business is performing in the present period and then about how their expectations 6 months ahead. The most recent result is 101.8 which is the highest since June 2008.
Mutual Fund Flows
The cause of the May 6th “flash crash” are still being hotly debated. But whatever the causes, whether animal spirits, duelling HFT algorithms, quote stuffing, or something entirely different, the effect on the psyche of the average investor is indisputable.
While there were no HFT algorithms around, the “flash crash” of May 28th 1962 left many just as befuddled as now. Back then, investors and traders felt traumatized and complained bitterly to their elected officials and to the SEC. In the end, they voted with their wallets and simply stopped investing money through Wall Street.
Giant firms like Merrill Lynch were squeezed, their earnings halved, and 8% of stock brokerages went bankrupt. And that was just as investors inflows stopped. Unlike the recent experience, investors didn’t actually withdraw their money. But it isn’t difficult to imagine the same traumatic impact on today’s investors, especially considering the raw nerves exposed by the 2008 bear market.
The most recent data for half of this month shows US investors withdrawing money from US equity funds and curtailing sharply their investments in bonds as well.
Option traders were the most fearful this week on Thursday as stock prices fell sharply. But on Tuesday, when most indexes fell by the same amount, they were still not too concerned. It would seem that a fourth, back to back decline finally brought out some fear.
The ISE Sentiment index (equity only) fell to 108 on Thursday and the 10 day average stood at 151. This was partly because on Friday, option traders returned with a vengeance and bought almost twice as many calls as puts.
The CBOE equity only put call ratio spiked up to 0.82 on Thursday, the highest daily level since May 20th when it reached 0.96. But the short term moving average was still at a subdued 0.65. Over all, we are seeing significant concern built into the option indicators but at the same time, there is ample evidence that traders are all to ready to quickly jump on any rally that might materialize.
In the chart above, you can see the CBOE put call ratio since 2004. I’m not sure how significant this is but I noticed that in the first few years of the range, there was an uptrending channel that contained the put/call ratio quite well. Starting with the bullish levels in October 2009 and then in April 2010, this suddenly converted to a downward sloping channel. Maybe I’m just seeing things but I wanted to share it with you just the same. Maybe you have an explanation or further insight, in which case you can drop a comment below.
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