March 6, 2013

Our Best Sentiments

Question: “Would you like more timely information about who owns your shares?”

Answer: Yes!

Question: “Would you be willing to ask for more timely information?”

Answer: Um…

Let’s change that “um” to a yes! You know about NIRI’s effort to shorten 13f reporting windows? Read about it here. All you have to do is fill out NIRI’s prepared template and email it to the address provided. There are 23 comment letters supporting the initiative as of March 5. With 1,600 companies in NIRI, we ought to be able to push the number up. See comment letters here: http://www.sec.gov/comments/4-659/4-659.shtml

This effort illustrates the difference between saying something and doing it (and there’s some serious doing here, which is great news!).

Speaking of which, TD Ameritrade is separating the chatter from the chart in its six million retail accounts with the TD Ameritrade IMX, an index showing what retail investors are thinking by tracking what they’re doing. Sentiment out this week for February was the best in stocks since June 2011.

Of course, one measure doth not a market make. We have an algorithm that looks for relative flows from retail money, and we saw more this period too. But other measures differed. As of March 5, Sentiment was 4.55, just below Neutral. We measure Sentiment by tracking relative changes in market-share for big behaviors and weighting that movement according to midpoint price-changes. It’s like a market-cap-weighted index. Statistically, 23% of clients had Negative market sentiment, 68% were Neutral, and 9% were Positive.

That’ll make you scratch your head as markets soar. So we checked money. A statistical sample of daily dollar flow (dollar volume of money each day) the past five trading days compared to the trailing twenty shows a decline of 4.1% in our random statistical sample. How can dollar volume be down when stocks are up?

Behavior someplace must be more aggressive. We looked at Rational money (fundamental investing) at the Nasdaq. It was down 3.8%. Passive money – indexes and models – was down 1%. But Speculative trading was up 1.5%, and Hedging, or risk strategies, were 1% higher too.

At the NYSE we saw slight increases in Rational investment. Fits, right? Money is biased toward blue chips, evidenced by gains for the Dow Jones Industrial Average yesterday. But here too passive money – in some sense, the smartest in the markets – was down. Hedging and Speculative trading were again up.

So what’s driving markets higher? Speculators with leverage. And this is why we suggest you sleep with one eye on your 401k and your boots by the door.

Also, this is exactly what you can know about your own trading. Market Structure is really not that complicated. See our full-page advertisement on the evolution of analytics in the March IR Update (and each coming month). You track what’s up and what’s down and compare it to what you do and say and how the market is behaving.

Sometimes the talk and the action don’t match. That’s what you want to know in your own market too. In the broad market, prices are exactly what you’d expect to see where trading reflects low interest rates and large drifting piles of Federal Reserve cash: leveraged and speculative.

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