Considering that the market has done nothing for the last few weeks, except bounce up and down in a very tight range, one would think that sentiment has cooled off from August's market crash. You would be wrong. The NAAIM sentiment survey released today shows that investment managers are practically on the ledge and ready to jump to their own deaths to escape this vicious market turmoil. Apparently, they just realized that their end of year bonus is not going to be filled with gold or jewels, but instead with a lump of coal thanks to their poor performance. NAAIM sentiment came in at 4.18, a level not seen since the March 2009 lows. This also means that investment managers are so depressed that they are almost completely net short (with leverage). It should be remembered that this is a contrary indicator. You generally make money by doing the exact opposite of these pigeons. Right now it is saying that we may be nearing an important low in the market. This is quite interesting because other sentiment indicators like the AAIII poll are not confirming excessive bearishness.
One thing to keep in mind when trying to use this indicator for market timing. Back in March 2009 when the market was bottoming, the NAAIM survey held below 10 for three weeks. So it is not a perfect timing indicator, but certainly one worth following.
Black Swan Insights