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Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here. |
The NAAIM index is a chart we regularly present. Representing the National Association of Active Investment Managers, it gauges active investment managers' exposure to the U.S. equity market, shedding light on manager sentiment and possible market trajectories.
Currently, as the index hovers around 60% equity exposure and appears short-term oversold post a sell-off, it's a prime time for some education, as you'll encounter this chart again.
On July 17th, we showcased this chart, noting active managers had an equity allocation of 93%. Essentially, they were nearly fully invested in equities. Our note highlighted, “U.S. households' commitments are primarily in domestic equities, closely following the peaks in 2000 and 2021. Historically, such a stance has indicated bearish prospects for upcoming equity performance.”
By August 7th, the index had peaked at 100% and decreased to 79% exposure. We wrote the following, “Upon hitting the 100% mark, equities underwent a mild correction, as expected. Overcommitment in equities by active managers is typically seen as a contrarian signal.”
Now, the index is veering into short-term oversold territory. Over intermediate and longer spans, we anticipate far more deleveraging ahead. Revisiting this history is chiefly to highlight the importance of tracking these sentiment indexes at extremes and detecting if systematic flows are complementing or leading the larger market.
As we shared on the Tier 1 Twitter yesterday, there was notable index distortion yesterday, primarily attributed to Apple. We can use these distortions to give us an edge; let us talk about it.
At July's end, the NAAIM index peaked at 100%, and just three days later, Apple broke its year-long trend into earnings on August 3rd. This was emphasized on Twitter then. Given Apple's 11% weightage in the Nasdaq, these technical breaks matter. It’s often the amalgamation of macro, breadth, and systematic correlations that provides an edge.
Today's bonus chart offers a unique angle – focusing on sentiment indexes at their extremes and the behavior of individual mega caps to decipher short-term possibilities. Come Monday; we’ll revert to our standard alligator charts, featuring a margin debt vs. S&P 500 bonus chart.
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Learn more about the Market Situation Report written by Tier 1 Alpha. |
