The fear in the market has all but been extinguished.
One of the tools of a technical analyst involves investor sentiment. There are two types of sentiment data: one involves surveying investors, both professional like the survey done by NAAIM and retail investors such as the survey conducted by AAII. The second type involves the literal actions of investors, such as put/call ratios, and asset flows.
When reviewing sentiment I prefer to spend more time looking at the actions investors take rather than the opinions they make. Compare this to when we have Presidential elections. Months before we cast our votes we hear reports of voter surveys as the media attempts to predict who will gain the most votes. So often these surveys get the election results wrong. Same can be said for survey of investors asking if they are bullish or bearish on the market. While extreme readings can be a cause for concern, looking at where investors are voting with their dollars, per say, we can get a better feel for what the sentiment of the market is.
One measure of sentiment that I want to take a look at today comes from SentimenTrader, an excellent resource. One of the data sets SentimenTrader provides digs into where investors are putting their money within the Rydex family of mutual funds. Rydex is one of the more transparent mutual fund companies that publishes the asset levels of each of their sector and leveraged funds. The chart below shows the percentage of assets held in Rydex money market accounts. As you can see value has been falling hard for the better part of 2013 and now sits at the lowest level since 2001. Jason Goepfert of SentimenTrader noted that traders have put $86 in un-leveraged funds for every $1 that’s been put in Rydex inverse funds and is the third highest ratio ever.
What this data is telling us is that investors are pouring their assets into the market, showing little fear of a correction in the equity market. As in 2000, the percentage held in money market accounts can go lower as investors continue shaking their pom-poms for equities, we’ll see if the market begins to ‘respond’ to this extreme reading in sentiment or if we continue higher as traders continue to focus on the Fed-induced rally.
Source: Daily Sentiment Report (SentimenTrader)
Disclaimer: The information contained in this article should not be construed as investment advice, research, or an offer to buy or sell securities. Everything written here is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned.
