Before diving into the latest NAAIM sentiment survey I want to make an important point. I’ve written quite a few posts over the past few weeks that has looked at how frothy this market has gotten and just how one-sided the sentiment data appears to be. While we can make the comment that the market is overbought, overdone, and investors are overexposed to risk, that doesn’t mean things cant climb higher. The Fed is still trying to force investors into riskier assets and that can keep equities elevated.
What the important takeaway from what I’ve been writing about is not that you should be aggressively shorting stocks (I don’t make investment recommendations on this blog) but that if/when we do turn over how things will be lined up to fall.
On Wedsneday we looked at a chart from Merrill Lynch that showed how little need for downside protection investment managers felt was necessary. Today we will look at a sentiment survey by the National Assoc. of Active Investment Managers. This is not a large survey but still can give us important insight into how money managers are positioned. SentimenTrader put out a great chart that looks at how leveraged the average investment manager is. Since 2006 there have been signs of leverage being used on the peripheral but we’ve never seen the AVERAGE manager take out leverage.
From SentimenTrader:
NAAIM polls a sample of investment managers and asks them how they’re positioned in stocks – from 200% net short to 200% net long. By being more than 100% invested either way, it means that the managers are leveraged.
That had never happened…until now.
For the latest week, the average investment manager was holding a net long position of 104%, meaning that not only were the managers fully invested, but they were leveraging their portfolios to take on even more risk. The previous high exposure was 96% in January 2007.
SentimenTrader goes on to discuss that while the average manager is leveraged to the upside, the most bearish manager currently has the most net-long position (60%) in the history of the survey. So not even the bears seem to want to truly be bears! You can take a look at the current and historical survey results at the NAAIM website.
Let me say it again, this does not mean we top tick based on this data. I still feel there is a lot of risk to the downside and this piece of data just shows that if we begin a new downtrend, there appears to be an awful lot of money that will have to unwind long positions – both professional and individual.
Source: Daily Sentiment Report (SentimenTrader)
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.
Are you aware of the sell side analysts numbers that Merrill tracks? After being at all time lows in 2012 they are still very low on a historical basis. Equity allocation recommendation still below 50% while average has been 60 – 65%.