Chart: 2014 Market Humiliates Money Managers

Have you ever bought or sold stocks at the worst possible time? If you have, you’ll really enjoy this chart, which exposes just how bad the recent timing of professional money managers has been.

Buy low, sell high. It’s easier said than done, but you’d at least expect the ‘pros’ to be reasonably good at this.

Wrong! Professional money managers already racked up an impressive lousy track record for 2014.

On February 7, I wrote an article titled: “Investment Managers Slash Equity Exposure by 50%,” and published the chart below.

The article commented that such an irrational move out of equities usually leads to a rebound of the S&P 500.

The chart data is based on the NAAIM (National Association of Active Investment Managers) survey, which is updated every Thursday.

Last week, the NAAIM survey was updated on February 6, which means that most of the data is received on February 4 and 5.

So in reality professional investment managers slashed their equity exposure by 50% right around February 4 and 5.

The S&P 500 (SNP: ^GSPC) tumbled to its 2014 low on … you guessed it … February 5 at 1,738.

That’s when active managers sold. The S&P 500 and S&P 500 ETF (NYSEArca: SPY) rallied over 5.2% since. The Nasdaq QQQ ETF (Nasdaq: QQQ) soared 7.11% since.

If the same thing happened to you (buy or sell at the worst of times), take heart, the pros didn’t do any better.

When harping on the skills (or lack thereof) of professional managers I’m often reminded of this saying: “Don’t throw stones if you’re sitting in a glass house.”

To be brutally honest, the 90 S&P point rally didn’t trip the buy trigger outlined in my Profit Radar Report, but at least we saw this rally coming.

The February 2 Profit Radar Report stated that: “Our preferred forecast calls for a brief dip towards 1,730 followed by an energetic rally towards 1,830 for the S&P 500,” and the February 12 Profit Radar Report mentioned 1,845 (open chart gap) as target.

The February 5 update featured this visual projection (yellow line) of the ‘energetic rally towards 1,830’ (as illustrated by the yellow line we expected the S&P 500 to close the open chart gap at 1,733.45 before rallying strongly).

The latest NAAIM data shows that the average investment manager increased equity exposure from 50.97% to 73.26%.

That’s interesting, but it’s impossible to draw any predictive conclusions from this one data point change.

However, the S&P 500 has surpassed our initial up side target ~1,830 and came within striking distance of closing the 1,845 gap, so risk is rising.

The Dow Jones (NYSEArca: DIA) is close to 14-year key resistance level, which delineates bearish risk from bullish potential.

In short, there’s no reason to be complacent around current levels and the pros may feel some redemption if trade revisits the previous low.

Of course, the ‘pros’ will look like complete fools if the big fat buy signal given by this indicator pans out.

New Spin on Old Indicator Gives Big Fat Buy Signal

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Advertisements

Investment Managers Slash Equity Exposure by 50%

The investment professionals are supposed to have it all figured out and be smarter than the average retail investor. Well, this article is not about smarts, but it shows that the pros don’t feel comfortable sticking to their ‘bullish guns.’

Professional money managers spend tons of time and money on investment research, so you’d expect them to stick to whatever decision they make.

But that’s not the case. Data from the National Association of Active Investment Managers (NAAIM) suggests that even the pros fold quickly.

The chart below plots the S&P 500 against the average stock exposure of investment managers polled by NAAIM.

With exposure of 101% the average manager was actually leveraged long in November and December and still 96% long in January.

Since November, managers have slashed their allocation to stocks by 49.75% to a current exposure of 50.97%.

Such quick reversals from similarly bullish readings don’t happen too often. The red lines in the chart above show some of them and how the S&P 500 performed thereafter.

The sample size is small, but three out of four times saw a short-term rebound, followed by more weakness and an eventual recovery for the S&P 500 (NYSEArca: SPY).

I find this mildly fascinating, because this harmonizes with the message produced by my composite of indicators.

Although, it appears like the eventual recovery could become the biggest sucker rally in a long time, at least that’s the message of two monster stock market cycles that converge for one massive sell signal in 2014.

More details can be found here:

2 Monster Stock Market Cycles Project Major S&P 500 Top in 2014

Simon Maierhofer is the publisher of the Profit Radar ReportThe Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Wrong-footed? Active Investment Managers are Record Long

Thanks to QE, contrarian investors have become an endangered species. Going short prematurely has ‘killed’ many. The surviving contrarians suffer from PTPSD (post-traumatic premature short disorder). In times past, this extreme would get contrarians excited.

Active investment managers polled by the National Association for Active Investment Managers (NAAIM) were record long last week.

The significance of this indicator (or lack thereof) can easily be misconstrued and lead contrarian investors in the wrong direction.

This article will take a look at a couple of interesting twists revealed by deeper digging.

The chart below plots the S&P 500 against the average position of active investment managers polled by NAAIM.

As of November 27 (the most recent data available) the average investment manager is 101.45% long. It’s impossible to be more than 100% long without margin, so the average investment manager is leveraged long.

The First Twist

From a contrarian point of view this sounds bearish. However, the chart also shows the last time active investment managers were leveraged long: January 30, 2013 (104.25%).

Investment managers’ appetite for stocks had no ill effect on the S&P 500 then. Could the current extreme be just another false alarm?

The Second Twist

Not all NAAIM position extremes are created equal. NAAIM also provides data on investment managers’ confidence in their bets and standard deviation of their allocation.

The second chart also plots the S&P 500 (NYSEArca: SPY) against the NAAIM average position and provides two additional data points: Managers’ confidence in their bet and the deviation among managers’ positions.

The green line shows managers’ confidence. More than three quarters of active investment managers are at least 95% long stocks. That’s the highest reading in the survey’s history.

Furthermore, there is a high degree of group think as the deviation is only 26.85%.

At the January NAAIM position extreme, three quarters of active investment managers were ‘only 85.25% long stocks with a deviation of 32.24%.

Untwisting the Knot

Based on the confidence in their decision and the lack of deviation among active managers, last week’s poll results may cause more of a headwind for stocks than in January.

The NAAIM poll is just one piece of the puzzle. There is another far more important, although less obvious, cause for stocks to correct further.

You can learn more about this force and a key price ‘control level’ here:

The ‘Invisible’ But Powerful Bearish Force

Simon Maierhofer is the publisher of the Profit Radar ReportThe Profit Radar Report uses technical analysis, dozens of investor sentiment gauges, seasonal patterns and a healthy portion of common sense to spot low-risk, high probability trades (see track record below).

Follow Simon on Twitter @ iSPYETF or sign up for the iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.