Looking Deeper at the NAAIM Survey Data

For years, I have been tracking the investor sentiment data series known as the NAAIM Exposure Index. This is compiled by the National Association of Active Investment Managers (NAAIM), which surveys its members weekly concerning their firms’ overall equity exposure as of each Wednesday. Responses can vary widely, as indicated below:

Range of Responses:

  • 200% Leveraged Short
  • 100% Fully Short
  • 0% (100% Cash or Hedged to Market Neutral)
  • 100% Fully Invested
  • 200% Leveraged Long

The responses are then tallied and averaged to provide the average long (or short) position of all NAAIM managers, as a group. With this week’s data, the NAAIM Exposure Index now stands at 112.93, meaning that, on average the group holds a leveraged long position in the stock market. This is the second-highest weekly reading ever, going back to the start of the data in 2006. Generally speaking, high readings like this mean that investors are really bullish, which is a sign of a market top. Even though these investment managers are professionals, they are still subject to crowd-like behavior.

In addition to the average exposure data, there are a couple of other fascinating insights which are included in the NAAIM results each week, and which do not get very much attention. The fact that they don’t get much attention makes them all the more interesting for me to look at. They are listed as “Bearish” and “Bullish” in NAAIM’s weekly data:

What those numbers represent are the exposure scores for the most bearish and most bullish of the survey respondents. So in the week of Jan. 20, 2021, for example, the single most bearish respondent was at a 75% exposure. Everyone else in the survey was more bullish than that, which is a pretty amazing statement.

Here is what that “Bearish” ranking looks like over time:

It turns out that when the most bearish respondent in the survey is himself pretty bullish, that is a fairly good indication of a topping condition for stock prices. And the converse also works for the “Bullish” number marking good bottoms.

When the single most bullish respondent gets down to a +100% exposure reading, that is a pretty good marker for a meaningful bottom in the S&P 500. Like any sentiment indication, it does not “work” all of the time, and sometimes the arrival at an extreme can be early for the actual price turn. But these are some pretty fun data to include in one’s analysis.