Short interest in U.S. still elevated while NAAIM survey points to caution being warranted

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The 2 charts below caught my eye this weekend in unison with the publication of the the National Association of Active Investment Managers (NAAIM) sentiment survey which measures the overall equity exposure of active money managers who are either long or short the stock market. This week’s reading of 82.89 in the NAAIM survey is the most elevated since April 20, 2011 – which was just before a very sharp correction many readers will no doubt recall. Overall, when active managers have elevated exposure (NAAIM number greater than 80), the returns for the S&P 500 Index are below average.

We can see that readings above 80% are not a magic number or an automatic sell signal but caution should still be warranted.

Looking into the sentiment backdrop a little further however the chart below still shows short interest in the US market (a good gauge for sentiment) at relatively high levels and certainly not conducive to the those that typically precede a sell off. Married with a rising VIX level that is nearly 3 times higher than actual realised volatility over the last 6 months and I think that although material headway is unlikely, the likelihood of a sharp sell-off is slim in the weeks ahead.

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