DecisionPoint Sentiment Analysis

DecisionPoint Sentiment Analysis

Introduction

Market Sentiment can be defined as the attitude of a particular group toward the market. Significant market tops and bottoms are normally accompanied by extremes of sentiment in one direction, and that is a strong indication that the market is about to head in the opposite direction. For example, market participants are extremely bullish at tops, just before the market starts to head down. Basically, once everyone gets on the bandwagon, the wheels will generally fall off. Regardless of the time frame of the poll, all sentiment should be considered short-term as it reflects the emotional state of the person being polled at that moment in time. The person's outlook can change quickly if some new element is injected upon the market scene.

StockCharts.com DecisionPoint area has the major sentiment polls available for review and charting. They are described below.

Investor's Intelligence

According to the Investor's Intelligence website, this survey has been widely adopted by the investment community as a contrarian indicator and is followed closely by the financial media. Since its inception in 1963, this indicator has a consistent record for predicting the major market turning points. This study surveys over a hundred independent market newsletters and assesses each author's current stance on the market: bullish, bearish or correction.

When the survey was developed by AW Cohen, he originally expected that the best time to be long the market was when most advisors were bullish. This proved to be far from the case - a majority of advisors and commentators were almost always wrong at market turning points. Quite simply, professional advisors are just as susceptible to market emotions as individual investors - they become far too greedy at the top of trends and far too fearful near the bottom.

II

American Association of Individual Investors (AAII)

The AAII Investor Sentiment Survey measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market for the next six months; individuals are polled from the ranks of the AAII membership on a weekly basis. Only one vote per member is accepted in each weekly voting period.

AAII

National Association of Active Investment Managers (NAAIM)

NAAIM was formed in 1989 as a non-profit association of registered investment advisors who provide active money management services to their clients, in order to produce favorable risk-adjusted returns as an alternative to more passive, buy and hold strategies. NAAIM started its survey, known as the NAAIM Exposure Index of member money managers in 2006. Since that time, it has become a known indicator to many analysts and other followers. The survey, known as the NAAIM Exposure Index, tracks the average NAAIM member's exposure to US Equity markets. NAAIM member firms who are active money managers are asked each week to provide a number which represents their overall equity exposure at the market close on a specific day of the week, currently Wednesdays. Responses can vary widely as indicated below. Responses are tallied and averaged to provide the average long (or short) position or all NAAIM managers, as a group.

Range of Responses:

  • 200% Leveraged Short
  • 100% Fully Short
  • 0% (100% Cash or Hedged to Market Neutral)
  • 100% Fully Invested
  • 200% Leveraged Long

NAAIM

Wall Street Sentiment Survey

Wall Street Sentiment Survey data are provided courtesy of Mark Young of WallStreetSentiment.com. Data are complied from the results of a weekly survey of a group of experienced traders and technically oriented market analysts with a diverse set of analytical disciplines, originally nicknamed 'The Fearless Forecasters' from Mark's message board at traders-Talk.com. Polling is conducted after the market close on Friday, and the results are normally published late Saturday. The poll asks participants for their forecast for the next week – bull, bear, or neutral.

Wall Street