KEY
TAKEAWAYS
- The AAII survey demonstrates a scarcity of bullish optimism after the latest bounce larger.
- The NAAIM Publicity Index suggests that cash managers stay skeptical of the latest advance.
- Whereas Rydex fund flows present a rotation to defensive positions, earlier bearish cycles have seen a lot bigger rotations.
After I take into account the fairness markets from a macro perspective, I start with the evaluation of the worth of the S&P 500. Then I take advantage of breadth indicators to substantiate what I am seeing by analyzing value motion. Lastly, and nonetheless very importantly, I have a look at market sentiment indicators that talk to how buyers are feeling in regards to the markets at any given second.
Whereas we have skilled a big rally off the early April lows, my overview of key sentiment indicators will present that there’s undoubtedly not rampant optimism lately. On the contrary, most alerts look like just like early-stage bearish phases. Let’s overview the proof collectively.
AAII Survey Reveals Notable Lack of Bulls
The American Affiliation of Particular person Traders (AAII) conducts a weekly survey of members, asking if they’re bullish, bearish, or impartial about equities. The newest weekly information from this ballot exhibits 22% bullish and 56% bearish, with a 34% unfold between the 2 buckets.
Within the weeks following the February 2024 market peak, the AAII bullish studying plunged from about 45% to twenty% and has remained round that stage ever since. Bearish readings have been within the 55-60% vary over the past eight weeks, and the unfold between bulls and bears has been pretty constant.
Regardless of many requires optimism on the latest bounce in our main fairness benchmarks, the AAII survey is suggesting that particular person buyers stay fairly skeptical about additional upside at this level. And in case you look again to 2022, you may see that this survey can stay on this common vary for fairly a while throughout protracted bear phases.
NAAIM Publicity Index Signifies Defensive Positioning
Now let us take a look at two extra sentiment indicators, beginning with the NAAIM Publicity Index. As I mentioned in a latest podcast interview with the President of NAAIM, the Nationwide Affiliation of Energetic Funding Managers, this is a company of cash managers who’re requested about their publicity to the fairness markets each week.
The newest outcomes of that survey present a mean allocation round 41%, down from simply over 90% on the February market peak. So whereas I’ve heard rumblings of institutional buyers piling into threat belongings off the April low, this survey would recommend that there’s nonetheless loads of capital patiently ready on the sidelines. And whereas the present studying at 41% is properly under common, we have seen the indicator attain right down to single digits throughout earlier bear market cycles.
Rydex Flows Not But at Excessive Ranges
The underside panel in that earlier chart exhibits the Rydex fund flows, exhibiting how buyers within the Rydex fund household are rotating between offensive and defensive positioning. This week, we noticed a brand new log for 2025, exhibiting the Rydex fund buyers have continued to rotate to extra defensive positions off the February market excessive. Look additional to the left and you may see that in 2022, 2020, and late 2018, this indicator reached a lot deeper ranges earlier than a significant market backside was lastly achieved. So whereas the latest rotation confirms a extra cautious outlook for buyers, it has not but reached excessive sufficient readings to be giving a transparent sign of draw back capitulation.
Within the order of significance, I’d put value on the high of the checklist. Ought to the S&P 500 regains its 200-day shifting common, I’ll discover it far more troublesome to stay bearish about market circumstances. However based mostly on my newest evaluation of key market sentiment indicators, the bears might have extra time within the solar earlier than this pullback section is over.
RR#6,
Dave
P.S. Able to improve your funding course of? Try my free behavioral investing course!
David Keller, CMT
President and Chief Strategist
Sierra Alpha Analysis LLC
Disclaimer: This weblog is for instructional functions solely and shouldn’t be construed as monetary recommendation. The concepts and methods ought to by no means be used with out first assessing your personal private and monetary state of affairs, or with out consulting a monetary skilled.
The creator doesn’t have a place in talked about securities on the time of publication. Any opinions expressed herein are solely these of the creator and don’t in any manner signify the views or opinions of another individual or entity.
David Keller, CMT is President and Chief Strategist at Sierra Alpha Analysis LLC, the place he helps lively buyers make higher choices utilizing behavioral finance and technical evaluation. Dave is a CNBC Contributor, and he recaps market exercise and interviews main consultants on his “Market Misbehavior” YouTube channel. A former President of the CMT Affiliation, Dave can also be a member of the Technical Securities Analysts Affiliation San Francisco and the Worldwide Federation of Technical Analysts. He was previously a Managing Director of Analysis at Constancy Investments, the place he managed the famend Constancy Chart Room, and Chief Market Strategist at StockCharts, persevering with the work of legendary technical analyst John Murphy.
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