Mistiming the Market

As a small addendum to our previous post on the market situation, here is a chart recently posted by the “Short Side of Long”. It shows the cash allocation reported by AAII, which surveys retail investors. Not surprisingly, retail investors tend to be completely wrong in their positioning at major lows and major highs, while generally not doing too badly in the middle portion of trends. That latter remark has to be qualified by the fact that they tend to lose their gains from this portion of a trend by being wrongly positioned at its end.


AAII-Cash-AllocationsRetail investor cash allocation reported by AAII, via the shortsideoflong – click to enlarge.


As Short Side of Long comments on the chart:


“According to the recent AAII Asset Allocation Survey by retail investors, cash levels in July dropped to the lowest level since 1999 at only 15.8%. Just as this was happening, European markets like DAX 30 have started a free fall of 10% in only a few weeks, while S&P 500 is also experiencing the strongest sell off in months. It seems to be that the same old theme of buying very high and later down the track, most likely panic selling into an upcoming low, will once again be occurring.”


Of course the fact that retail investor cash allocations have sunk to the lowest level since 1999 is quite an astonishing and newsworthy datum, but we have seen the same thing happening in Rydex money market fund asset levels for quite some time already.

It should be pointed out that such data are not very useful as short term timing indicators, they do however have medium to long term significance. Certainly they show in this case how the average retail investor has once again been led astray by monetary pumping.


Chart by: Short Side of Long




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