AAII Stock – Deviation from 21-Year Mean Allocation (Monthly Charts)


Cash Allocation Survey – Deviation from 21-Year Mean Allocation (Monthly Charts)


Fusion IQ Sentiment Review:

Secular liquidity, aka buying power, as seen through the eyes of current individual investor allocations relative to historic norms shows ample liquidity on the sidelines and in cash. Current levels approximate liquidity seen at the 1990 and 2002 lows, which continues to suggest that there is likely enough liquidity to keep moving stocks higher in this snapback/bounce.

When combined with incredibly negative investor expectations, no alternative for return in fixed income and the principles of mean reversion at work moving higher with some volatility, pullbacks (possible re-test of lows) and consolidation is a reasonable expectation still. Remember continue to watch how stocks act on bad news. When they rally on bad news not only does it suggest investors are looking over the valley it also suggests liquidity is ample to absorb then repel the selling.

Granted after a 25 % rally off the lows and stiff resistance in front of us near 850 (S&P 500) it won’t be an easy climb. The reason it is never is an easy climb off the lows is because at every level higher on an index pockets of under water investors (ie. losing money positions) can sell at break even prices. Nonetheless these indicators suggest we can move higher over time. We will continue to monitor for changes that would suggest this argument is no longer true.

Shorter term sentiment measures such as Put/Call ratios and AAII Bearish Sentiment Survey (see in our Sentiment Review Note) which were decidedly bullish for the market several weeks ago via their bearish readings have moderated but are not at levels yet that would be construed as a negative.

Category: Markets, Psychology, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

55 Responses to “Sentiment Review 4.09.09”

  1. grumpyoldvet says:

    A long time friend, involved in the RTC program, last evening told me that a major regional is now looking at stress under, his words “depression levels”. Said we’ll find out how all this turns out after June when the real numbers come thru

  2. karen says:

    take a straight edge from the november high.. spx broke out today, whether it’ll stay above that line is another story…

  3. leftback says:

    Remember that this is not a typical recession. Interest rates can only rise from here, choking off growth.
    This has been more of a correction of an extreme oversold condition than a true recovery.

  4. OkieLawyer says:


    I am curious as to what “depression levels” mean?

  5. dead hobo says:

    Dear Guest Author,

    Please don’t take this the wrong way, but I don’t think it takes a rocket scientist to figure out that a lot of cash is on the sidelines and that people who were in stocks a year or more ago probably aren’t now if they have a realistic choice available. Also, since cash is pretty fluid, it can go into stocks pretty fast if a good reason comes along.

    If you can provide some insight into who is buying (day traders, hedgies, institutionals, mutual funds, idiots) for what purpose (buy and hold, day trading, stupidity), and offer any insight as to if the purchases are broad based, some kind of conspiratorial pump and dump or just another sucker rally, then this information would be useful.

    If you know WHO is buying, you might be able to add insight into WHY they are buying. This would also be useful.

    Personally, I plan to run cycles for a couple more years and then put everything in treasuries, except for a hobby account.

  6. dead hobo says:

    Why treasuries? In a couple of years, interest rates will be about 15%, or on the way. That’s good enough for me. I can avoid inflation enough to make money on it. All this stimulus has to go somewhere.

  7. dead hobo says:


    Economists See No Job Recovery Until Late 2010
    by Phil Izzo
    Thursday, April 9, 2009

    Economists in the latest Wall Street Journal forecasting survey expect the recession to end in September, though most say it won’t be until the second half of 2010 that the economy recovers enough to bring down unemployment.


    If the consumer is 2/3 of the economy and employment won’t get better for about 1 1/2 years, then how can the recession be over in a few months? That sounds like pointy headed stupidity to me.

  8. AmenRa says:

    This rally isn’t going to end well. When it turns it will turn hard. I’m envisioning daily 50-70 point drops in the S&P. Aug-Sep 08 will seem like a cakewalk.

  9. leftback says:

    I imagine that today has altered the sentiment readings. Next week looks like a good short.
    Certainly after today there will be nobody left to cover.

  10. DL says:

    AmenRa @ 4:09

    I think you’re right. But the question is, does this crazy rally make it all the way to S&P 999 first.

  11. Super-Anon says:

    Well we should be a lot closer to getting capitulation in short-selling now. That could clear one barrier to heading back down.

  12. Super-Anon says:

    I was watching the financials today from the sideline, my feeling that I was never going to try to short financials again.

    Of course if enough people feel that way…

  13. adavydov says:

    Could anyone else resist FAZ below $11? Snapped some up at an avg. of $10.50! Feeling very pessimistic about next week earnings.

  14. AmenRa says:

    DL @ 4:13

    The reversal for the monthly 3LB is 968.75. That’s the price of maximum resistance IMHO. But I wait until the S&P begins to trend in either direction before I get into the market.

  15. dead hobo says:


    Who the hell is buying? There isn’t an ounce of sustainability. The economy doesn’t appear to be strong enough in the future to support an Elliot wave type of incline. This fucker is going back to 700 or below, depending on GM, the bank reports, earnings, and employment.

  16. Onlooker from Troy says:

    “I imagine that today has altered the sentiment readings. Next week looks like a good short.
    Certainly after today there will be nobody left to cover.”

    Yep, it’s feeling just like holding long positions in the latter part of Feb, first week of March. Just when you feel like you can’t stand it anymore, it turns. I fought my emotions then and held on for the updraft. Now I’m doing the same with some shorts (although not near as much as longs back then). I can stay solvent long enough to wait out the irrationality. I’m not on margin here as I was a bit at the lows.

  17. Mannwich says:

    I fully expect strong “earnings” reports from GS and JPM next week. It’s all part of the script. They’re next on the list of potemkim announcments to manipulate the markets upward. It’s still all going to end badly. Bizarro world.

  18. Super-Anon says:

    FWIW, XLF now 80% above its 2009 low now.

  19. leftback says:

    @adavydov: Could anyone else resist FAZ below $11? Snapped some up at an avg. of $10.50!

    Yes. That may prove to be a nice call, and I am on board as well. Could be a repeat of Thanksgiving.
    Bid up the market when many players are absent, squeeze the shorts and sell the crap out of it Monday.

    I think once buyers of XLF think about this over the weekend they may be running for the exits.
    This is usually where the banksters announce plans to issue more common stock. Delusion and dilution.

  20. DL says:

    dead hobo @ 4:21

    This rally has already gone further than I thought it would.

    By bearish conviction is being sorely tested.

  21. Mannwich says:

    I got clobbered today (my worst day of the year, by far) but I snagged some SRS, QID and FAZ into the close. Wanted to throw up in my mouth a little while I was doing it but here we go. That’s the time to do it, right?

  22. leftback says:

    @MW: “I snagged some SRS, QID and FAZ into the close”

    Exactly. I did the same. There was no possible reason for REITs to rally, or the NAZ.
    It felt just as difficult as going long gold stocks in November or buying anything on March 6.

    So, it may well turn out to be the right move. Even if there is a further push, SPX 875 is overhead.
    Even the bulls don’t think we can get through 875 without a correction.

  23. Mannwich says:

    QID actually got pummeled far less than the other two. It’s getting closer to 52-week lows, I believe, which is, to put it mildly, insane in this climate.

  24. Martin Weiss says:

    Jupiter, FL, April 8, 2009 — Several of the nation’s largest banks, including JPMorgan Chase, Goldman Sachs, Citibank, Wells Fargo, Sun Trust Bank, HSBC Bank USA, plus more than 1,800 regional and smaller institutions are at risk of failure despite government bailouts, according to Martin D. Weiss, Ph.D., president of Weiss Research, Inc., an independent research firm.


    But I thought the Depression was called off today. Didn’t Wells show that it’s a great time to be in banking.

  25. dead hobo says:


    I’m by nature a Pollyanna oriented soul. I see a really good run up after the economic dust settles. It will be a house on fire. Just not today or for many more months yet. I feel sorry for these buyers, but they will be the ones I sell to on the next cycle … which I will hold onto longer next time. Maybe the idiot oil money that ran oil up to $147 is buying equities now? There’s no way on Earth I’m putting a dime into this rally. Been there, done that. Not again.

  26. Mannwich says:

    Correction: QID 52-week low is 31.41. Still not that far away, considering deteriorating fundamentals is there really any rational reason for it to be this low?

  27. Joe P says:

    i don’t know who’s writing these FusionIQ reports, but I sure hope it’s not you, Barry. Otherwise, I won’t be buying your book.

    I took the liberty of translating that first paragraph into English:

    Buying power, as measured by the ratio of cash to stocks held by individual investors, shows ample liquidity on the sidelines, well in excess of historic norms. These levels have not been seen since the stock market lows of 1990 and 2002, suggesting that there is sufficient liquidity to keep moving stocks higher.

    I’m not touching that second paragraph. What a mess. Your high-school English teacher should be fired.

  28. Mannwich says:

    @Joe P: This one was written by a guest author, not BR.

  29. Pool Shark says:


    I show the 52-week low for QID at 36.44.

    But I agree that we shouldn’t be this close to the lows.

    I too jumped into SRS today; unfortunately I jumped a bit early when IYR hit its 50% retracement level (at SRS=36.00)…

    Waiting for the sheep who were buying IYR today to wake up on Monday and realize we’re still in a deflationary recession where retail is going to get ‘sheared’…

  30. tranchefoot says:

    Beware hedge fund redemptions from the short side. Could drive this up much higher.

  31. dan10400 says:

    as a percentage of assets, cash levels might be historically high, but this could also
    be explained by the other values of other components (bonds/equities) dropping
    like rocks. so, not sure how much credibility to put into this. a lot of investors
    got caught flat-footed and lost quite a bit in ’08.

  32. ben22 says:

    this right here should tell you that the put/call ratio isn’t all the much help in looking at right now. My thinking is that the vast majority of puts are bought as protection against long positions. With this much money in cash, what needs to be protected exactly?

    What were put/call ratio’s during prior periods where the charts showed such high %’s allocated to cash.

  33. mark says:

    Crap, crap, crap!

    If you have a correlation that covers a period of time when:

    1. housing prices have fallen nationwide an average of 30% (and accelerating according to CS)
    2. the entire world is going into a synchronous recession
    3. world trade is falling even faster than it did in the ’30s
    4. every central bank in the world has been forced to the zero bound etc. etc.

    then I might think it has some value.

    Nothing that happened between 1987 and 2007 is even remotely comparable to what has been going on since.

  34. mark,

    nice point, Time is, but, one dimension..

    “Beware hedge fund redemptions from the short side. Could drive this up much higher.”
    –tranchefoot offers an appropriate caveat..

    the current pricing makes little sense, though, as we know, trade the Mkt. you see..

  35. usphoenix says:

    IMHO the White House is dialed into this blog and doing a really nice job of clouding the facts.

    Larry Summers was in the media with a rosy glow effusing his brilliance. Mongo was nowhere to be seen, and the market chose to ignore Alcoa for WFC. So it will probably only take six months for WFC to correct.

    So my oracle is on track. BO will work his magic enriching his friends for about 4 more months and then the wheels will come off. Q1 is already fully discounted. (Well as much as it’s going to be). Q2 is suddenly irrelevant.

    At some point we will all get BS shots. And the truth will win out.

  36. Bob_in_MA says:

    Looks like there’s lies, damn lies, and sentiment indicators…

    From: The End of the Rally Is Nigh
    WEDNESDAY, APRIL 8, 2009

    “When stocks rebounded in recent weeks, so did investor attitudes. On March 5, 70% of the respondents to the American Association of Individual Investors’ survey were bearish on the market. The current survey, as of late last week, recorded only 37% bearish, which is more in line with its 20-year average of 30%.

    And the bulls went from 19% on March 5 to their current 43%. Compare that to the long-term average of 39%.”


  37. royrogers says:

    “””””Bob_in_MA Says:
    April 9th, 2009 at 7:29 pm

    Looks like there’s lies, damn lies, and sentiment indicators…

    From: The End of the Rally Is Nigh
    WEDNESDAY, APRIL 8, 2009

    “When stocks rebounded in recent weeks, so did investor attitudes. On March 5, 70% of the respondents to the American Association of Individual Investors’ survey were bearish on the market. The current survey, as of late last week, recorded only 37% bearish, which is more in line with its 20-year average of 30%.

    And the bulls went from 19% on March 5 to their current 43%. Compare that to the long-term average of 39%.”


    excellent post BOB, the only scientific conclusion we can make is that Barry is Bullish and once again cherry picking data to support his outlook. He absolutely has no statistcial science backing him up. But then, once again he is right and made some $$ on the recent rally. So what is important is barry’s own sentiment, which seems to be right on for making trades.

  38. hopeImwrong says:

    To everyone holding inverse ETFs over the long weekend (lb, mw, adavydov), you have more guts than me. I sincerely wish you the best on this trade. Almost wish I was holding too.

  39. Andy Tabbo says:


    I thought some of us did a decent job of debunking these charts that last time you displayed them. If a majority of investors are “passive” and don’t change up their allocation constantly, then many people are simply riding the ups and downs of the stock market. (Given what my circle of friends, I think this is a decent assumption.) So, if you started with some mixture of cash v. stocks, then the mere ups and downs of the equity markets can explain most of the gyrations of this “sentiment” indicator. Sentiment may very well be negative, perhaps extremely so, but this chart is sort of worthless as a sentiment indicator.

  40. p.k. says:

    When it comes to the whole “cash on the sidelines” call, I wonder, after 2 bear markets within the last 10 yrs., how much of that cash will never come back (esp. with all those boomers this close to what they thought was retirement). IOW, they “bought and held”, and got burned twice to the point where they’re behind where they were 10 yrs. ago.

  41. Andy Tabbo says:

    Sorry for disparaging you Barry. I see this is some sort of guest author….

    Guest Author, go back to the last time Barry put up this coincident chart and see some of the comments….

  42. Andy Tabbo says:

    leftback and other folks who initiated shorts on the close….

    Not a bad trade. 869 – 881 zone is an area of several resistance points. It’s very difficult for me to see the SP500 trading above 881 without some sort of major pullback. Also, the DX/euro did not really confirm this move at all. The DX was up and the stock market was roofing????

    I sold the SP500 and the DX at 3.10 CST today…post close. I think something will have to give next few days….either the DX will puke very hard or the SP500 is about to see a very sharp pullback. Or, if I’m ‘lucky,’ a mixture of both?

  43. Andy Tabbo says:

    karen Says:
    April 9th, 2009 at 3:44 pm
    take a straight edge from the november high.. spx broke out today, whether it’ll stay above that line is another story…

    Bless you Karen. I luv ya. You have good taste in music. But, I do not see what you see. Can you plese give the “november high” you’re citing? And the level? Date? It would help me to get inside your head….if I dare.

  44. JasRas says:

    First, let me say I am attracted to chartporn like a bug to a light…I love stuff like this–but I also love to find the potential pitfalls so I am not led into wrong conclusions. These are compelling charts but I believe the timeframe is too short as we have basically been in a bullish trend since 1982 that would affect people psychologically via re-enforcement. That trend probably was supposed to end in 2000-2001, but Greenspan expanded it a few more years. Expand these graphs to cover the 1970′s as well or further and I might bite. Otherwise, they are mostly relevant to a time that has past.

    I believe we are in a new epoch. Long term trends that last 18-25 years–long enough to condition people into behaviors that “always worked in the past”. “Buy the dips”, “Buy and hold”, oh remember “dividends are for your grandparents” (that’s all from the 80′s and ’90s…) You can identify these time periods on the charts…

    The interesting thing is that while the sentiment chart may have helped you identify that we were oversold, it does nothing for me in this case to indicate this was “the” bottom. I guess that is because I am in the “fools camp” believing this time is different that anything we’ve experienced in the last 20years–so a 15% underweighting from the 60% avg stock weighting sounds ok to me. The cash seems to indicate an overall ignorance in the benefits of fixed income because everyone in the last 20 years has been conditioned to believe fixed income is not important. In fact, going into 2008, US Treasuries were the most underweight they had ever been in the average portfolio. Institutional, retail, period. Well, except China’s massive stack…

    If one takes the time to get some perspective on the market, you would see that over the long term the indices annual return ex-dividend is 5.5-6%. That changed in 1982 and scooted to 7% Then in 1995 Greenspan became unhinged, as did all major indices. Because of over-leveraging. We are not going back there anytime soon–or at least we shouldn’t. If we do, then we are simply postponing a return to the mean.

    I know that not all leverage is going away. I am not a doom and gloomer. But I do believe we are metaphorically going through a detox program for the markets. It just isn’t this easy. The economic numbers will prove out that the government can only do so much, but in the end some things have to find their own way.

  45. DL says:

    Andy Tabbo @ 10:54

    I want to remind you of your post on March 8th, 2009 at 6:00 pm:

    “…the market will “slice” through the 716/746 zone like a hot knife through butter. The minimum target would be 792 for .618*A = C. The maximum target…GULP….would be 995 for a 1.618*A=C.
    Both these cases have some pretty compelling features to me, so that’s why I’m sidelined for now”

    The timing of this was excellent. I should have paid more attention.

  46. TrickStar says:

    I shorted the S&P Monday and am feeling very good about the position.

    It’s not so much Q1 earnings that will take the wind out of the market – it’s guidance on the rest of the year.

    In Q1 earnings earnings will have benefited from firms’ ability to cut fat to shore up weaker revenues.

    With lower revenue guidance going forward, and no fat to cut, earnings will suffer, or firms will have to continue cutting opex – ie cutting into muscle – which in turn threatens revenues.

    If this were Lord of the Rings, we just met Gandolf.

  47. H.T. says:

    I try and blend technical, fundies, and sentiment/psychology.

    So, i can see a rally to 990-1100 [it's a Fibonacci retracement], but also this market will, i believe prove to be the most fiendish one since the 29-33. It will rally in order to trap those folks, as it did in spring 1930, that were smart enough to get out, but then panic bought in.

    Bloomberg had a piece showing Hedge funds were selling incrementally into this rally [leg one], average performance mutual fund guy was buying [second leg up], and then a Leg Mason guy came on and said they are seeing retail investors buying [third and last leg] That may get us to that level. If I’m right and Jon Q Public gets screwed again, we will have a true lost generation–as the whisper a la Poe {“nevermore”} will always be there.

    Fleckenstein took off his shorts smartly in January, and is/was raising money for a new Bear fund to put to work as i understand it by May.

    Last, sentiment indicators are so reported to death that I’m beginning to believe they will be contra-contra- indicators soon…

  48. DiggidyDan says:

    HaHAHAHA! Hey Adavydov, check this one out from the other thread,

    Yeah, everything is fantastic, the worst is past! ahem, we may need another 5 billion dollars to get out of our hole before the really, really bad shit starts

    DiggidyDan Says:
    April 9th, 2009 at 11:56 am
    In support of SB’s Generational Buy: Buy ‘Cyclical’ Stocks as Worst Is Past, Goldman Says. Yes, that Goldman, the one that told everyone mortgage backed securities were the greatest investment vehicle on earth as they unloaded all of the crap while at the same time putting shorts in place.

    Now the question is, how long can they snow the world over until reality hits? Sell in May and go away, bottom of S&P 474 beginning in October.

  49. Andy Tabbo says:

    @DL. Thanks. Yeah, I remember that weekend well…March 8th. I could feel myself turning bullish that weekend with so much technical evidence building up in the bullish camp. I’m a little pissed though….did not catch as much of this move as I should have caught. The absence of any decent pull back has been annoying.

    I’m working hard this weekend on some analysis as I think we’re approaching an inflection point. I’ll post something Sunday night.

  50. rootless_cosmopolitan says:

    There are two major logical flaws in the graphics and the narrative to the graphics (again):

    1. The allocation of equity has decreased relative to cash due to collapsing equity prices. Let’s look at the charts. The allocation had been about 64% stocks, 22% cash (, and 14% everything else) in 2007 before the stock market crashed. Assuming equity prices drop by 50%, everything else stays the same, the numbers will be 32, 22, 14, or, the re-calculated relative allocations will be 47% stocks, 32% cash, and 21% everything else, respectively. And, Voila! The relative allocation of stocks and cash is about in the range what the graphics show. Thus, the conclusion in the narrative, that individual investors had more extra liquidity now to drive the equity prices up, compared to the time before the crash, is logically fallacious.

    2. There is no money flowing “in” the stock markets or between the markets, when equity rises, or “out” off the stock market, when equity prices fall. The stock market isn’t a container, into which money is poured and accumulated, or from which money is drained. Although, it is every day talk to say, “I put my money into stocks”, when I buy equity, the money I spent won’t be “in stocks” afterward, it will go into the pockets of the ones who sell the equity to me. From the perspective of the seller an equal amount of money is taken “out” off the stock market, which I put “in” stocks. The money isn’t flowing in the markets, or out of them, it flows between households. The markets are interfaces between the households that exchange goods or assets for money and vice versa. This shows, though, that the every day talk actually reflects a wrong perception of economic processes, if the wrong perception even appears in charts and narratives like above, made by people who should know it better. Thus, the whole “money on the sidelines” talk is based on false assumptions and perceptions.

    My conclusion regarding the Fusion IQ Sentiment Review is that I don’t see much value in it, since the conclusions in the review are based on the logically false presumptions above.

    Of course, all this doesn’t mean at all that equity prices can’t go further up from here.


  51. kenster says:

    rootless_cosmo nailed it – the ‘mean allocation’ chart appears deeply flawed. Assume a passive investor w/ $100k is 80/20 in stocks/cash. The market goes down by half, & he has 40k stocks/20k cash , so he’s gone from 25% to 33% cash allocation, but has no more money to invest than before – does he really have more buying power that is implied by the above chart??? Of course not, & he’s probably inclined to hang on to the remaining 20k cash for dear life rather than throw good money after bad. ( probably would put the cash to work after we’re back to dow 14000, but that’s another story…..)

  52. drollere says:

    my first reaction is: this chart refers to “individual investor” cash and equity allocations. are those household (retail) investors? what proportion of the market are they, compared to hedge, pension, institutional, sovereign fund investors? who are the real swinging dicks in this market? who is the hoser, and who is the hosee?

    my second reaction is: all the previous readings are within the historical bubble envelope, i.e. between 1984-2008. if this is truly a post bubble environment, and the catastrophe here is a historical inflection in leverage ratios, regulatory constraints, asset values, inflationary pressures, household debt and savings rates, then what conclusion can i draw from historical patterns that occurred during the largest economic bubble in human history?

    charts are not the way that financial thinking results in decisions. in any situation you can find charts that will point, if not to any conclusion, then at least to very different conclusions. the deciding factor is the scenario. the scenario is not just based on charts, but on your understanding of investments in general, of the economy, of politics, of recent history, of demographic and social trends, and of human nature. these shape your search for and appreciation of charts that fit your view of the world and where it is going.

    let’s see the cash/equity allocations from the 1930′s, please.

  53. johnny says:

    I got short on Monday with an inverse ETF making up 14% of my portfolio, cash with 18%, long the rest. I’ve been buying since December starting from zero, and not everything bottoms at the same time. I got multibaggers in my portfolio already. The market had me doubting my downside hedge, which also limited the Friday upside, but I’m sticking to my guns on this one. For sure it will be the last time I try it. There’s so much pop on the upside it’s better to be patient with cash and catch the upside again after a treacherous downward leg. I’m scared as all hell and hope this rally doesn’t get irrational. But this is how you learn. This recession sure feels different than the rest. It’s happening simultaneously all over the world. The stimulus money hasn’t even been deployed.

    The question that begets me is how sufficiently determined is bernanke? Is he determined enough to print the quantity of money necessary to truly overcome the destruction caused by the credit bubble burst?

  54. johnlu96 says:

    I linked this article to my financial blog with a comment. It’s titled “All Right, Bulls – You Deserve a Vote”, dated April 11, 2009 on http://skycity96.blogspot.com/.

    My comment relates to the relevance of the data. The charts in the article had the data up to Feb 09. However, the world has moved on since. So it’s a bit misleading to read the charts as they are without some adjustments to the effect.