The psychological rollercoaster continues. After reaching 8 month lows just a few weeks ago sentiment is swinging wildly in the opposite direction. David Rosenberg notes the latest Barron’s Big Money Poll which found that the most bullish positions also highly correlate to the highest net speculative futures positions:
Chart 2 highlights the latest Barron’s consensus on the various asset classes — percent bullish and bearish. Equities followed by oil and credit would seem to be the most crowded trades right now. In fact, we can confirm that when it comes to the net speculative long positions on at least S&P 500 futures and oil, not to mention non-U.S. currencies, the specs are hugely long. This could lead to some reversal near-term if either the economy relapses or the U.S. dollar reverses course. It’s always hard to identify what the catalyst will be.
Rosenberg also notes the large net speculative position in gold, but points out that the position is not accompanied by overly bullish money managers:
Gold has a huge net speculative long position on the Chicago Mercantile Exchange (CME) but portfolio managers don’t seem too enamoured so that is at least good news from a contrary standpoint. Only Treasuries are despised — the Barron’s fall 2009 poll showed 4% bulls and 65% bears, so it would stand to reason that this would be the asset class to be in if we were to see anything reverse the crowded pro-risk trade on so many tables right now.
A recent reading from the Investors Intelligence newsletter survey found that bearish sentiment has fallen the most since late 2003 after the sharp rally:
This Week Prior Week Comments Bullish 46.1% 44.4% First gain in four weeks Bearish 21.3% 26.7% Steepest drop since 2003 Correction 32.6% 28.9% Matched the highest since September 1997 Note: When bullishness sank to 22.2 percent in October 2008, it was the lowest since November 1988.The bearish reading of 54.4 percent that month was the highest since December 1994.
Finally, the latest AAII poll for stocks showed another sharp increase in bulls to 46.1%. Bears fell at the fastest pace in 6 years to 21.3%.
From a purely contrarian perspective, sentiment is beginning to favor the bears, however, as we’ve seen in recent weeks this bi-polar market can change on a dime.
Source: Gluskin Sheff
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.