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Sentiment Survey
A Logical Look at an Emotional Market

John J. Kosar, CMT

November 11, 2010

Report Summary

 The US Stock Market: Near To Intermediate Term Bearish. The latest data
suggests that the US stock market is probably in the latter to final stages of its current
July advance, but still may be a few weeks away from completion. However, at least a
corrective decline appears likely sometime this quarter, before the current July advance
continues appreciably further.

 US Treasury Prices: Near To Intermediate Term Bearish. Three different types of

fixed income investor, plus investors in the Japanese stock market, concur that long
dated US Treasury prices are either within weeks of an important peak or have already
peaked at their recent highs.

 The US Dollar: Near Term Bullish, Intermediate Term Bearish. Four different
measures of investor sentiment, representing two different time frames, indicate
favorable investor sentiment for a near term rebound in the US currency now, within
what appears to be an unfinished decline that began in June.

 Crude Oil & Energy Prices: Near Term Bearish, Intermediate Term Bullish. Both
asset flow- and survey-based data indicate favorable investor sentiment for a near term
peak to emerge in energy-related asset prices soon, probably over the next few weeks,
within the larger and what appears to be unfinished advance that began in early 2009.

* For further information about Asbury Research please visit the Asbury Research Website or
our Logic-Over-Emotion Investing blog.
 Asbury Research
US Stock Market: Too-Bullish Investors Suggest At Least A Correction Is Likely In Q4
In today's report we display and discuss the latest
investor sentiment data according to four different
types of investor: Registered Investment Advisors
(RIAs), individuals, small options traders and market
letter writers. The composite take-away from these
data is that these investors are either at or near a
multi-year extreme in bullishness on the US
stock market that historically coincided with or
led a one to several month market decline.
Chart 1 displays the S&P 500 (SPX) in the upper
panel and a weekly survey of market positioning
according to The National Association of Active
Investment Managers, or NAAIM, in the lower
panel. NAAIM was formed in 1989 as a non-profit
association of registered investment advisors who
provide active money management services to their
clients "in order to produce favorable risk-adjusted
returns as an alternative to more passive, buy and
hold strategies".
Originally called SAAFTI and comprised of a small
group of successful, passionate firms, NAAIM has
grown to include roughly 200 member firms
nationwide, managing an estimated $14 billion. Their
weekly member survey, which appears in this report
for the first time, was launched in July 2007.
Chart 1
The red vertical highlights between both panels
show that these professional investors are currently
at a multi-year most bullish extreme on the US stock
Page 2 11/11/2010
market that has either coincided with or led what
have been the most important peaks in the SPX in
the past four years.
Accordingly, , as a contrary indicator, this metric
suggests that the July advance in the US stock
market is in its latter to final stages before at least a
corrective decline begins.
Chart 2 measures investor sentiment according to a
weekly poll of individual investors via the
American Association of Individual Investors
(AAII) survey. The poll asks the AAII membership
where they think the market will be in six months,
and group the responses into three categories:
bullish, bearish or neutral. The AAII Bull Ratio,
which appears in the lower panel, is the percentage
of bullish responses divided by the sum of the
percentage of bullish and bearish responses. A
weekly bar chart of the S&P 500 appears in the
upper panel.
Chart 2
Very similar to Chart 1, the red vertical highlights
between both panels show that these investors are
just starting to move away from previous most
bullish extremes reached in October, extremes
which have previous coincided with or led most
every important peak in the SPX since 2006. Again,
the message is that investors are historically too
bullish on US equities for them to move much higher
without at least a correction first.
Chart 3 (next page) measures investor sentiment
according to small retail options traders via the
 Asbury Research
OCC Small Trader Buy-To-Open Put/Call Ratio
which appears in the lower panel. As the name
implies, this data series only includes opening
positions on small option orders of just 10 contracts
or less. A bar chart of the S&P 500 appears in the
upper panel.
Chart 3
The green and red highlights in the lower panel
define most and least bearish extremes by these
small investors, according to the ratio of daily put
volume versus call volume, since 2006. The red
vertical highlights between both panels show that
these investors are currently just starting to move
into a multi-year least bearish (meaning most bullish)
extreme that had previously either coincided with or
led what have arguably been the most important
peaks in the S&P 500 during this period.
WE view this as more evidence, from a completely
different type of investor, that suggests the July
advance in the US stock market is probably in its
latter to final stages without at least a corrective
decline first.
Chart 4 measures investor sentiment according to
stock market newsletter writers via the Investors
Intelligence (bulls minus bears, blue line, lower
panel) data. These investors are notorious trend
followers just like the investors represented by
Charts 1, 2 and 3, which means that they are also
typically the most bullish at market tops and the
most bearish at market bottoms. However, unlike
our previous charts, the blue arrow in the lower
panel points out that these investors are currently
Page 3 11/11/2010
only about two-thirds of the way to reaching previous
most bullish extremes that have historically
coincided with market tops, as highlighted by the
thick red vertical lines across both panels.
Accordingly, unlike the other charts, these data
suggest that there is still some room for more near
term stock market strength before we can expect a
peak to emerge.
Conclusion and Investment Implications
Charts 1-3 show that RIAs, retail investors and
small options traders have all reached previous
extremes in bullishness that, as a contrary indicator,
have coincided with most of the important peaks in
the S&P 500 within the past five years. Chart 4,
however, shows that market letter writers, who tend
to operate within a longer term time frame, have not
yet reached similar extremes.
Combined, these data suggest that the US stock
market is probably in the latter to final stages of
its current July advance, but still may have
another couple weeks or so to go. We would view
a move into most bullish territory in the Investor
Intelligence data shown in Chart 4 as an indication
that a corrective decline in US equity prices is ready
to begin.
 Asbury Research
US Treasury Prices: Investors in Treasuries And Japanese Equities
Concur That US Interest Rates Are Bottoming
In today's report we display and discuss the latest
investor sentiment data according to brokerage and
advisory firms, small retail traders, and traders in
options on futures. In addition, we also look at the
latest retail investor sentiment data for Japanese
equities, which have maintained a tight and stable
positive correlation to benchmark US interest rates
over the past 20 years. Combined, these data
indicate ideal investor sentiment for a near to
intermediate term peak to emerge in long dated
US Treasury prices, if one is not already in place
at the recent highs.
Chart 1
Chart 1 measures investor sentiment on the 30-year
T-Bond (black bars, upper panel) according to
brokerage and advisory firms, which are polled
daily by the Market Vane Survey (blue line, lower
panel). These market professionals are typically
trend followers, just like the retail-oriented clientele
that they serve, and tend to operate within an
intermediate term, quarterly investment horizon. A
daily bar chart of the CBOT 10-Year Note contract
appears in the upper panel.
The red and green highlights in the lower panel
define most bullish (67% to 81% bullish) and least
bullish (45% bullish or less) extremes in this survey
since 2001. The red vertical highlights between both
panels show that these investors are just starting to
retreat from previous most bullish extremes that had
Page 4 11/11/2010
previously coincided with or led what have been the
most important peaks in the price of the 10-Year
Note during the past decade. At the least, these
data suggest that long dated US Treasury prices are
closing in on another similar peak now, and they
could be indicating that a peak is already in place at
the recent highs.
Chart 2 measures investor sentiment according to a
daily survey of small retail investor bullishness on
the CBOT T-Bond contract, which appears as the
blue line in the lower panel. A daily bar chart of the
T-Bond itself appears in the upper panel.. These
retail investors are notorious trend follows, just like
the professional entities in Chart 1, but tend to
invest within a shorter time frame.
Chart 2
The red and green highlights in the lower panel
define most bullish (88% bullish or greater) and least
bullish (14% bullish or less) extremes in this survey
since 2004. The red vertical highlights between both
panels show that these investors are currently
moving away from an August most bullish extreme,
which coincided with the late August peak in the T-
Bond, that had previously corresponded with what
have been the most important peaks in the long
bond during this period.
The blue arrow on the right side of the chart shows
that, at 63% bullish as of the latest data, these
investors have so far only migrated about halfway
back to the opposite, most bullish extremes (green
 Asbury Research
highlights) that have coincided with most of the
bottoms in the T-Bond during this period.
Accordingly, these data suggest that the current
price decline from the August highs is only
somewhere around halfway completed.
Chart 3 measures investor sentiment according to
futures options traders via the 10-day moving
average of the Call/Put Ratio of T-Bond options
traded on the Chicago Mercantile Exchange, which
appears in the lower panel. A daily bar chart of the
T-Bond contract appears in the upper panel.
Chart 3
The rightmost red vertical highlight between both
panels shows that these options traders are
currently at an historic bullish extreme on the long
bond (as indicated by an excessive amount of call
volume versus put volume), which the other red
vertical highlights show has previously coincided
with or led most of the important peaks in the T-
Bond since 2005.
These data indicate that options traders are
currently too bullish on long dated US Treasury
prices for them to continue much higher from here,
at least without a corrective decline first. Also note
that in October the Call/Put Ratio reached its highest
level since March 2009, the latter which led a steep
3-month decline into the June 2009 lows.
Chart 4 takes a more indirect look at investor
sentiment in long dated Treasury prices via the
Japanese stock market, the latter which has
maintained a tight and stable positive correlation
with benchmark US interest rates for the past 20-
years. This relationship exists because the US is
the largest purchaser of Japanese goods.
Page 5 11/11/2010
The chart displays the Nikkei 225 Index in the upper
panel, and a daily survey of retail investor
bullishness on the Nikkei in the lower panel. The
red and green highlights in the lower panel define
most bullish and least bullish extremes in this survey
since 2004. The corresponding green vertical
highlights between both panels show that these
investors are currently hovering at a multi-year least
bullish extreme that, as a contrary indicator, has
either coincided with or led what have been the most
important bottoms in the Japanese index since
2004.
Chart 4
Per the correlation, the upcoming rebound in the
Nikkei that these data suggest is imminent -- and
which is already underway as discussed in our
Monday, November 8th Keys To This Week --
should coincide with a rise in benchmark US interest
rates as long dated Treasury prices decline.
Conclusion and Investment Implications
Three different types of fixed income investor, plus
investors in the Japanese stock market, concur that
long dated US Treasury prices are either within
weeks of an important peak or have already peaked
at their recent highs.
Put another way, these data suggest that the April
trend of declining long term US interest rates is
coming to an end, and is slowly being replaced by a
new trend of rising rates -- the latter which could be
triggered by smart money bond investors
anticipating the inflation that will eventually come out
of QE2.
 Asbury Research
The US Dollar: Favorable Sentiment For Corrective Rebound Within Larger Decline
In today's report we display and discuss four
different measures of investor sentiment that pertain
to the US currency, representing two different time
frames. Combined, these data indicate favorable
investor sentiment for a near term rebound in the
US currency now, within what appears to be an
unfinished decline that began in June.
Chart 1 measures investor sentiment according to
the small retail investor via a daily survey of
individual investor bullishness on the US Dollar,
which is displayed by the red line in the lower panel.
A daily bar chart of the US Dollar Index appears in
the upper panel.
(NOTE: The US Dollar Index is an index of the
exchange rates of six non-US currencies versus the
greenback that is heavily weighted toward Europe.)
Chart 1
The red and green highlights in the lower panel
define most bullish (80% bullish or more) and least
bullish (20% bullish or less) extremes in this survey
since 2007. The corresponding green vertical
highlights between both panels show that these
investors are currently at a multi-year least bullish
extreme that has previously coincided with or led
what have been the most important bottoms in the
US currency during this 4-year period. Accordingly,
these data indicate favorable investor sentiment for
another similarly-important bottom to emerge in the
greenback now or soon.
Page 6 11/11/2010
Chart 2 measures very near term investor sentiment
according to futures traders in the US Dollar Index
contract via futures open interest. The chart
displays a daily bar chart of the US Dollar Index in
the upper panel, and daily total open interest in the
contract (red line), along with its 10-day moving
average (blue line), in the lower panel.
Chart 2
Total open interest is the total number of open
futures contracts (both long and short) that have
been entered into and not yet liquidated by an
offsetting transaction or fulfilled by delivery. Open
interest measures near term investor conviction in a
price trend and as such typically expands in the
direction of the trend and begins to contract when
the market decides that the trend is no longer
sustainable.
The pink highlights in both panels show that open
interest began to expand above its 10-day moving
average in mid September, just as the index started
to break down below its August lows. This indicated
near term bearish conviction that the decline would
continue -- which it did. More recently, the green
highlights show that total open interest has
contracted back below its 10-day moving average as
the index began to stabilize and rise from major
underlying support at its November 2009 benchmark
lows at 75.62 (not shown on this chart). This recent
contraction indicates that investors are covering
short positions because they are no longer
convinced that the Dollar will continue to decline
from here, which is near term bullish for the
 Asbury Research
greenback. This chart is particularly important
because it shows that investors are collectively
acting on the least bullish extremes shown in Chart
1 by covering short positions.
Chart 3 measures investor sentiment in the US
Dollar according to the more intermediate term
investment horizon of brokerage and advisory
firms via the daily Market Vane Survey, which
appears in the lower panel. A daily bar chart of the
US Dollar Index appears in the upper panel.
Chart 3
The red and green highlights in the lower panel
define most bullish (58% to 76% bullish) and least
bullish (21% bullish) extremes in this survey since
2001. The blue arrow at the lower right edge of the
chart points out that these professional investors are
currently retreating from a June most bullish
extreme, but are currently only about halfway to
reaching opposite least bullish extremes that have
coincided with many of the most important Dollar
bottoms during this period. Accordingly, these data
suggest that -- from a more intermediate term
perspective -- the current decline from the June
highs may only be around halfway completed.
Chart 4 measures investor sentiment according to
mutual fund investors via the Rydex US Dollar
Ratio (blue line, lower panel). The Rydex US Dollar
Ratio is the total assets invested in the Rydex
Weakening Dollar 2x Strategy Fund (RYWBX)
divided by the total assets invested in the Rydex
Strengthening Dollar 2x Strategy Fund (RYSJX). It
indicates the degree of bearishness on the US
currency by these more intermediate to long term
oriented trend followers. A bar chart of the US
Dollar Index appears in the upper panel.
Page 7 11/11/2010
Chart 4
The green and red highlights in the lower panel
define most bearish and least bearish extremes in
this ratio since 2008. Note that these extremes have
coincided with or led what have been the most
important bottoms and tops in the US Dollar Index
during this period.
The rightmost red vertical highlight points out the
most recent of these extremes, a least bearish one,
suggests that -- despite the sharp decline that has
already taken place from the June highs -- these
investors are still too bearish on the US currency to
expect a sustainable bottom to emerge. Put another
way, according to these data the rebound in the US
currency as suggested by Charts 1 and 2 is more
likely to be near term and corrective rather than a
sustainable advance in the US currency.
Conclusion and Investment Implications
Charts 1 and 2 indicate that near term oriented
investors are not only at most bearish extremes on
the Dollar that are characteristic of market bottoms,
but have also started liquidating short positions in
anticipation of a rebound. The latest data from
brokerage firms and mutual fund investors as
represented by Charts 3 and 4, however, show that
these more intermediate to long term investors are
nowhere near the previous bearish extremes that
have historically coincided with a sustainable bottom
in the US currency.
Combined, these data indicate favorable conditions
for a near term rebound in the US currency within its
larger June decline, the latter which appears to be
only about halfway competed.
 Asbury Research Page 8 11/11/2010

Crude Oil & Energy Prices: Favorable Sentiment For A Near Term, Corrective Decline

The four charts discussed below, which utilize both
asset flow- and survey-based data, essentially break
investor sentiment in energy related asset prices into
two time frames -- near term and intermediate term.
These latest data indicate favorable investor
sentiment for a near term peak to emerge in the
prices of these assets soon, probably over the
next few weeks, within the larger and what
appears to be unfinished advance that began in
early 2009.
thinks oil prices are temporarily over-priced, and are
trying to take advantage of it. Assuming that history
repeats, these data suggest that oil prices are at or
near a similarly-important peak in prices now.
Chart 2 measures investor sentiment via a daily
survey of near term oriented retail investors' level
of bullishness on oil prices, which appears in the
lower panel. A daily bar chart of the crude oil
contract appears in the upper panel.

Chart 2
The red vertical lines between both panels show that
Chart 1 the most important peaks in oil prices since 2006 did
not emerge until 86% or more of these retail
Chart 1 measures investor sentiment in crude oil
investors became bullish. With these investors at
prices according professionals within the oil
81% bullish as of the latest data, the retail crowd is
industry that use the futures market to hedge their
not quite at these extremes yet -- but is getting
physical inventory or future purchasing needs. The
close. Considering that the smart money hedgers
upper panel of the chart displays the weekly net
have already aggressively sold into the recent rise in
position of Commercial hedgers in the NYMEX
prices, we would view a move into the 86% bullish
crude oil contract, whom the Commodity Futures
area by these retail investors as a potential catalyst
Trading Commission (CFTC, which compile and
for what appears to be an upcoming correction
publish these data) define as hedgers holding 350 or
lower.
more contracts. A weekly bar chart of the crude oil
contract appears in the lower panel. Chart 3 (next page) measures mutual fund
investor sentiment in the Energy Sector via our
The red vertical highlights between both panels
Rydex Energy Ratio (blue line, lower panel), which
show that these Commercials are currently holding a
plots the total assets of the Rydex Energy plus
net short position in excess of 116,000 contracts,
Energy Services Funds divided by the total assets
one that has previously coincided with most every
invested in all the Rydex sector funds. This indicator
near term peak in oil prices since 2009. Simply
essentially plots the daily percentage of sector bet-
stated, these data indicate that the "smart money"
related assets that are being allocated to Energy.
 Asbury Research
Chart 3
The red and green highlights in the lower panel
define over-invested and under-invested extremes in
the Rydex Energy Ratio since 2005. The green
vertical highlights between both panels show that
these investors are at a multi-year under-invested
extreme on the Energy Sector now, one which has
previously coincided with or led most of the
important bottoms in the Energy Sector SPDR ETF
(XLE, upper panel) during this period.
These data tell us that, even though crude oil prices
are susceptible to a near term decline as indicated
by Charts 1 and 2, the Energy Sector is still under-
invested from a more intermediate to long term
perspective and this amid favorable conditions for a
much larger advance -- once this upcoming decline
runs its course.
Chart 4 measures investor sentiment via the Market
Vane Survey of more intermediate term oriented
brokerage and advisory firms. The chart displays
this daily survey of the level of investor bullishness
on oil prices in the lower panel and a daily bar chart
of the crude oil contract in the upper panel, both
since 1999.
Page 9 11/11/2010
Chart 4
The red and green highlights in the lower panel
define most bullish (76% bullish or more) and least
bullish (just 17% bullish or less) extremes in this
survey during the past decade. The green vertical
highlights between both panels show that these
investors have only reached least bullish extremes
three times during this period, the most recent
instance being in February 2009, and that they have
coincided with or led what have arguably been the
most important bottoms in oil prices during this
period. Moreover, a closer look at the chart shows
that once these least bullish extremes were reached,
oil prices continued to rise until these investors
moved to opposite most bullish extremes.
With these investors at only 55% bullish and rising
as of the latest data, this measure suggests that the
larger February 2009 advance is only somewhere
around halfway completed. Like Chart 3, these data
also suggest favorable conditions for a much larger
advance once the minor correction suggested by
Charts 1 and 2 runs its course.
Conclusion and Investment Implications
Both asset flow- and survey-based data pertaining to
near term oriented individual investors and futures
traders, as displayed in Charts 1 and 2, indicate
favorable investor sentiment for a near term peak to
emerge in energy-related asset prices over the next
couple of weeks. However, similar data from more
intermediate term-oriented mutual fund investors
and brokerage and advisory firms suggest that this
upcoming decline is likely to be corrective rather
than directional, and eventually lead into the
resumption of crude oil and energy prices' larger
 Asbury Research Page 10 11/11/2010

February 2009 advance -- which only appears to be

around halfway completed.
Considering the tight and stable positive correlation
between crude oil prices and the S&P 500 since the
US stock market peaked in October 2007, these
data also indirectly suggest a near term negative,
intermediate term positive outlook for the US stock
market -- which corroborates the charts and analysis
on Pages 2 and 3 of this report.

* For further information about Asbury Research please visit the Asbury Research Website or
our Logic-Over-Emotion Investing blog.

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