I wanted to look at some sentiment charts here. Before doing that we have to acknowledge sentiment data is something where investors can easily get caught up in noise. It’s dangerous to give them too much weight for two reasons. First, polls are appealing data points that we can turn to to confirm our market bias. Second, there’s a huge difference between what people say and what they do.
One of the more eye popping indicator charts we’ve seen lately is the Investor’s Intelligence Poll flashing 4:1 bulls to bears. Investor’s Intelligence tracks newsletter writers. Many want to be right about the market, but it’s bad for business to be on the wrong side of the tape. You just don’t want to get caught bearish right now.
It’s standard to consider bull/bear readings over 3:1 as something worth noting. No doubt, this reading is pretty wild when you look left on the chart. However, we’re not seeing any other sentiment surveys line up like this at the moment.
Check out the NAAIM survey, which tracks active manager exposure. It’s actually at a 1 year low.
Earlier this fall I studied a NAAIM data point that looked very bearish. The study had a surprising bullish finding.
Active Investors via the AAII poll are bullish, but not nearly as bullish as we’ve seen in the past.
Individual Investor sentiment is fickle right now. Fickle isn’t something we see at the end of a move (note the persistent bullishness late 2014-early 2015). Again, there can be a huge difference between what people say and they do.
The two main takeaways here are it’s an obvious bullish environment and some active managers are preparing for a correction. Make of it what you will.