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  • Recent AAII survey readings came in at 43% bulls and 29% bears. Over the last month, bullish readings have been quite elevated with the AAII bull ratio (4 week moving average) once again reaching bullish extremes. This is the third time extremes have been reached during the last 12 months.
  • Recent Investor Intelligence survey levels came in at 62% bulls and 15% bears. Bullish readings have remained above 50 for months now, while bearish readings remain at one of the lowest levels in surveys history. The ratio of bullish versus bearish investors has remained above 3 for awhile now, and Ed Yardeni does a great job of showing what has happened historically with such a skewed reading.

Chart 1: Managers exposure towards equities resembles group think

NAAIM SurveySource: Short Side of Long

  • Recent NAAIM survey levels came in at 95% net long exposure, while this weeks intensity was at 190%. Over the last eight weeks (two months) average fund manager net long exposure has been 96% (record since inception), while the two month intensity has reached levels 166% (also approaching record highs). Interestingly enough, over the last six weeks, the most bearish managers have actually held no short bets, as they are now also holding slight net long positions too. In other words, from the most bearish to the most bullish fund managers, group think is prevailing on the long side.

Chart 2: Retail investors continue to pile into global stock markets

Equity Fund FlowsSource: Short Side of Long

  • Recent ICI fund flows reports showed that “equity funds had estimated inflows of $1.79 billion for the week, compared to estimated inflows of $430 million in the previous week. Domestic equity funds had estimated inflows of $254 million, while estimated inflows to world equity funds were $1.53 billion.” 
  • Recent Rydex fund flows data has jumped towards bullish extremes. Nova Ursa fund flow indicator has now spiked to levels not seen since 2007 market top, as the Rydex family of investors (dumb money) celebrates the rise in stocks throughout December by piling “all into the market”.

Chart 3: Nasdaq speculators continue to maintain elevated bullish bets

Nasdaq COTSource: Short Side of Long

  • Recent commitment of traders reports (also known as dumb money) showed that hedge funds and other speculators still remain heavily exposed towards technology stocks. Latest positioning data reveals only a marginal fall from extreme highs in the last couple of weeks, as net long contracts still stands at 100,298. Constant and persistent bullishness and crowding is evident throughout the whole of 2013.

Chart 4: Volatility Index is coiling into a compressed decision point

Volatility IndexSource: Short Side of Long

  • Recent volatility conditions remains in the complacency conditions. While just about everyone knows that the volatility index (VIX) has remained at extremely low levels, from a technical perspective seen in the chart above, the price is coiling into a pressure cooker – in other words, it is time for a decision. At the same time, the Skew Index (measuring a probability of a “black swan” market sell off) reached one of the highest levels in its history. Lastly, the options activity shows speculators are focused on bullish strategies in recent weeks, as the PC ratio reached upside extremes of 1.5 standard deviations.
Chart 5: Household exposure to stocks has risen to levels of 2007 top

Equities As Percentage Of US Household Financial Assets Source: Short Side of Long

  • We continue to be told that this is one of the most hated bull markets in the modern history and yet the various measurable data does not support this group think opinion at all. Chart above shows that the Q3 data by the Federal Reserve observed how the household exposure to equities as a percentage of their overall financial assets rose towards 28.7%. By no means are the households shunning away from the equities, like they did during the late 1970s and early 1980s. This increase in bullishness is also confirmed by other measurable data sets and surveys too. We can see the growth in stock exposure of the 401k accounts as well as jump in net long positioning of AAII retail investor survey. Corporations aren’t bearish either, with recent data showing that CEOs are accomplishing near record buybacks.


  • Unlike equity readings, Bond sentiment surveys remain close to extreme pessimistic levels, usually associated with historic buying opportunities. Market Vane survey is at 47% bulls, with a lower bound of pessimism usually associated with readings of 45% or lower. Even more interesting is the Consensus Inc survey with current readings of 31% bulls. With this survey, a lower bound of pessimism is usually associated with readings of 30% or below. In general, bearish sentiment is now as high as it was during the 2006, 2009 and 2011 readings (all major bond buying opportunities).

Chart 6: Bond funds are experiencing a 7th consecutive monthly outflow

Bond Fund FlowsSource: Short Side of Long

  • Recent ICI fund flows reports showed that “bond funds had estimated outflows of $3.59 billion, compared to estimated outflows of $8.09 billion during the previous week. Taxable bond funds saw estimated outflows of $2.19 billion, while municipal bond funds had estimated outflows of $1.40 billion.” For majority of 2013 retail investors, who are trend followers, have been bailing out of bond funds and ploughing money into equity funds. This is now a 7th consecutive monthly outflow from various bond funds, however majority of the assets within the sector have held up well since the initial correction in May and June of 2013.

Chart 7: Speculators are once again pressing Treasuries with shorts

Treasury Bond COTSource: Short Side of Long

  • Recent commitment of traders report (also known as dumb money) shows that small speculators have once again returned towards extreme bearish bets on the Treasury bonds market. The latest report showed that net short level reached over -62,000 contracts and is only a handful of contracts lower then the recent extremes seen in early December of 2013. In my opinion, the downtrend is extremely oversold and becoming exhausted (with various bullish divergences) so I would expect a serious short squeeze to come sooner rather than later.


Chart 8: Funds continue to shun commodities as downtrend persists

Commodity COT  Source: Short Side of Long
  • Recent commitment of traders reports (also known as dumb money) showed that hedge funds and other speculators continue to remain bearish on the commodity complex. As a mater of fact, the chart above shows that throughout the whole 2013, hedge funds have held minimal exposure towards commodity prices, never reaching above 400,000 net longs. Current cumulative net longs stand just above 185,000 contracts (custom COT aggregate). Amazingly, current exposure is about 10% of what it stood at in 2011 near a major peak, when net long contract level was above 1.36 million. This is a perfect example of how investors have given up on the commodity complex, as we enter a third year of under-performance.

Chart 9: Agricultural exposure is at one of the lowest levels in years…

Agriculture COTSource: Short Side of Long

  • Dow Jones UBS Agricultural Index, which makes up a major proportion of the CRB Index, remains in a downtrend since it peaked in July 2012 (during the US drought). The index is dominated by Grains, however Soft commodities have been butchered for three annual years now. Hedge funds and other speculators have been shaken out of their long positions, with exposure falling to multi year lows across the board. Hedge funds have been heavily shorting agri-commodities like Corn, Wheat and Coffee for quite some time now. Sugar positioning is near the lower range of historic exposure, while investors are decently bullish on Cotton and Soybeans. Contrarians should note that the COT positioning and sentiment surveys on Wheat are near all time historic bearish levels.


Chart 10: Speculator are holding net long positions on the US Dollar

US Dollar COTSource: Short Side of Long

  • Recent commitment of traders reports (also known as dumb money) showed a decently elevated net long exposure towards the US Dollar. Cumulative positioning by hedge funds and other speculators has remained quite steady for the last several weeks at around $18 billion. Speculators are split on various foreign currencies, with the Eurozone currencies being favoured and Asian / Commodity currencies being disliked. In other words hedge funds hold bullish bets on the Euro, the Pound and the Franc; while they hold bearish bets on the Yen, the Aussie and the Loonie.

  • Currency sentiment survey readings on the US Dollar remains round neutral levels. However, the reasoning behind this was already explained above, with one side of the foreign currency market sold and the other bought. A great example of this is the recent data from SentimenTrader’s Public Opinion surveys – with the Pound approaching bullish extremes, while the Canadian Dollar or the Japanese Yen sits at bearish extremes.

Chart 11: Hedge funds remain bearish on the overall PMs sector

Precious Metals COTSource: Short Side of Long

  • Recent commitment of traders reports (also known as dumb money) showed hedge funds and other speculators continue to hold one of the lowest levels of net long exposure in years. Aggregate positioning in both Gold and Silver currently stands just above 67,300 net long contracts. Comparing this to the recent price peak in August, positioning stood at almost 102,000 net long contracts; while the price peak in October 2012 saw exposure as high as 281,000 net longs. In other words, bullish exposure has been cut by almost 75% in a year and half.

Chart 12: Silver’s sentiment is now at one of the lowest levels in decades

Silver SentimentSource: Short Side of Long

  • Precious metals sentiment survey readings show just how awful the opinion of the investment community is towards the overall sector. The chart above shows how SentimenTrader’s Public Opinion has now reached only 20% bulls on Silver for only the third time since the 2001 bottom.The current downtrend has persisted since October 2012, so contrarians should pay attention to the possibly of Silver breaking out of its downtrend in coming weeks.

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