Systematic Relative Strength

As you know, when individuals self-report, they are always taller and more beautiful than when outside observers report their perceptions!  Instead of asking individual investors to self-report whether they are bullish or bearish, we’d like financial advisors to weigh in and report on the actual behavior of clients.  It’s two simple questions and will take no more than 20 seconds of your time. We’ll construct indicators from the data and report the results regularly on our blog–but we need your help to get a large statistical sample!

Click here to take Dorsey, Wright’s Client Sentiment Survey.

Contribute to the greater good!  It’s painless, we promise.

After the first 30 or so responses, the established pattern was simply magnified, so we are comfortable about the statistical validity of our sample. Most of the responses were from the U.S., but we also had multiple advisors respond from at least two other countries. Let’s get down to an analysis of the data! Note: You can click on any of the charts to enlarge them.

Question 1. Based on their behavior, are your clients currently more afraid of: a) getting caught in a stock market downdraft, or b) missing a stock market upturn?

Chart 1: Greatest Fear.  From survey to survey, the S&P fell -3.0%, and client fear levels responded in-kind.  The overall fear number rose from 88% to 93%; the greatest fear numbers are now the highest we’ve seen since mid-June.  On the flip side, the opportunity group fell from 12% to 7%.  Client sentiment remains terrible.

Chart 2. Greatest Fear Spread.  Another way to look at this data is to examine the spread between the two groups.  The spread jumped this round, from 77% to 87%.

Question 2. Based on their behavior, how would you rate your clients’ current appetite for risk?

Chart 3: Average Risk Appetite.  Overall risk numbers plummeted this round, from 2.44 to 2.08.  Overall risk appetite is now the lowest we’ve seen since September of 2010.

Chart 4: Risk Appetite Bell Curve. This chart uses a bell curve to break out the percentage of respondents at each risk appetite level.  Over 50% of all respondents want a risk appetite of either 1 or 2.

Chart 5: Risk Appetite Bell Curve by Group. The next three charts use cross-sectional data. This chart plots the reported client risk appetite separately for the fear of downdraft and for the fear of missing upturn groups.  This bar chart sorts out as we expect, with the fear group looking for low risk and the opportunity group looking for more risk.  Keep in mind that with the light holiday response, there were only 4 total respondents in the upturn category.

Chart 6: Average Risk Appetite by Group.  Both groups’ risk appetite fell, just like the overall risk number.

Chart 7: Risk Appetite Spread.  This is a spread chart constructed from the data in Chart 6, where the average risk appetite of the downdraft group is subtracted from the average risk appetite of the missing upturn group.  The spread jumped by a small degree this round.

This survey, we saw the market dip lower, and both client fear levels and overall risk appetite respond as expected.  The overall risk appetite number paints an ugly picture — client sentiment is now the worst it’s been since September of 2010.  While that’s never a good thing, some studies have shown that when client sentiment reaches these types of overextended low levels, the stock market does well going foward.

No one can predict the future, as we all know, so instead of prognosticating, we will sit back and enjoy the ride. A rigorously tested, systematic investment process provides a great deal of comfort for clients during these types of fearful, highly uncertain market environments. Until next time, good trading and thank you for participating.

As you know, when individuals self-report, they are always taller and more beautiful than when outside observers report their perceptions!  Instead of asking individual investors to self-report whether they are bullish or bearish, we’d like financial advisors to weigh in and report on the actual behavior of clients.  It’s two simple questions and will take no more than 20 seconds of your time. We’ll construct indicators from the data and report the results regularly on our blog–but we need your help to get a large statistical sample!

Click here to take Dorsey, Wright’s Client Sentiment Survey.

Contribute to the greater good!  It’s painless, we promise.

PS – This is the last chance to enter the drawing for a Dorsey Wright Polo Shirt this quarter.  Good luck!

After the first 30 or so responses, the established pattern was simply magnified, so we are comfortable about the statistical validity of our sample. Most of the responses were from the U.S., but we also had multiple advisors respond from at least two other countries. Let’s get down to an analysis of the data! Note: You can click on any of the charts to enlarge them.

Question 1. Based on their behavior, are your clients currently more afraid of: a) getting caught in a stock market downdraft, or b) missing a stock market upturn?

Chart 1: Greatest Fear.  From survey to survey, the S&P rose just over +1%, and client fear levels rose slightly.  Client fear levels rose from 87% to 88% despite a minor bounce in the market.  On the flip side, we see that the opportunity group dropped from 13% to 12%.  Normally, we’d expect to see a market bounce lead to a drop in fear levels.  You’ll remember that last round, the overall fear numbers remained flat, despite a +7% move in two weeks.  Client sentiment remains in the pits.

Chart 2. Greatest Fear Spread.  Another way to look at this data is to examine the spread between the two groups.  As with the overall fear numbers, the spread remained mostly stable, rising from 74% to 77%.

Question 2. Based on their behavior, how would you rate your clients’ current appetite for risk?

Chart 3: Average Risk Appetite.  Overall risk appetite numbers nudged higher this round, from 2.42 to 2.44.  In contrast with the overall fear numbers, the average risk appetite data continues to perform as expected.  Check out how the overall risk appetite average mirrors the market movement.

Chart 4: Risk Appetite Bell Curve. This chart uses a bell curve to break out the percentage of respondents at each risk appetite level.  Over 80% of all respondents were looking for a risk appetite of either 2 or 3 (just like last time).

Chart 5: Risk Appetite Bell Curve by Group. The next three charts use cross-sectional data. This chart plots the reported client risk appetite separately for the fear of downdraft and for the fear of missing upturn groups.  This bar chart sorts out as we expect, with the fear group looking for low risk and the opportunity group looking for more risk.

Chart 6: Average Risk Appetite by Group.  The fear group is looking for more risk here, while the opportunity group’s average did not move.

Chart 7: Risk Appetite Spread.  This is a spread chart constructed from the data in Chart 6, where the average risk appetite of the downdraft group is subtracted from the average risk appetite of the missing upturn group.  The spread fell slightly this round.

This survey, we saw a relatively minor market rally, and small moves in both the overall fear numbers and the average risk appetite.  The overall fear numbers actually got worse this round, despite a rally.  On the other hand, the risk appetite average number nudged higher, in line with the market.  The overall risk appetite number remains the king of all indicators, performing as expected nearly every survey round.  On the whole, client sentiment is still very, very bad, especially when considering the S&P has rallied nearly 10% in less than two months.

No one can predict the future, as we all know, so instead of prognosticating, we will sit back and enjoy the ride. A rigorously tested, systematic investment process provides a great deal of comfort for clients during these types of fearful, highly uncertain market environments. Until next time, good trading and thank you for participating.

As you know, when individuals self-report, they are always taller and more beautiful than when outside observers report their perceptions!  Instead of asking individual investors to self-report whether they are bullish or bearish, we’d like financial advisors to weigh in and report on the actual behavior of clients.  It’s two simple questions and will take no more than 20 seconds of your time. We’ll construct indicators from the data and report the results regularly on our blog–but we need your help to get a large statistical sample!

Click here to take Dorsey, Wright’s Client Sentiment Survey.

Contribute to the greater good!  It’s painless, we promise.

After the first 30 or so responses, the established pattern was simply magnified, so we are comfortable about the statistical validity of our sample. Most of the responses were from the U.S., but we also had multiple advisors respond from at least two other countries. Let’s get down to an analysis of the data! Note: You can click on any of the charts to enlarge them.

Question 1. Based on their behavior, are your clients currently more afraid of: a) getting caught in a stock market downdraft, or b) missing a stock market upturn?

Chart 1: Greatest Fear.  From survey to survey, the S&P rose around +7%, and client fear levels remained almost exactly the same (87% for the fear group and 13% for the opportunity group).  Normally we would expect to see a significant drop in client fear levels, but that didn’t happen this week.  Clients, on the whole, are wary of the stock market.

Chart 2. Greatest Fear Spread.  Another way to look at this data is to examine the spread between the two groups.  As with the overall fear numbers, the spread remained stable at 74%.

Question 2. Based on their behavior, how would you rate your clients’ current appetite for risk?

Chart 3: Average Risk Appetite.  Overall risk appetite numbers continued to rise this round, up to 2.42 from 2.32.  The overall risk appetite numbers have risen over the last few weeks, in line with the overall stock market.

Chart 4: Risk Appetite Bell Curve. This chart uses a bell curve to break out the percentage of respondents at each risk appetite level.  Over 80% of all respondents were looking for a risk appetite of either 2 or 3.

Chart 5: Risk Appetite Bell Curve by Group. The next three charts use cross-sectional data. This chart plots the reported client risk appetite separately for the fear of downdraft and for the fear of missing upturn groups.  This bar chart sorts out as we expect, with the fear group looking for low risk and the opportunity group looking for more risk.

Chart 6: Average Risk Appetite by Group.  Both camps’ risk appetite rose this round with the market, for the second straight survey.

Chart 7: Risk Appetite Spread.  This is a spread chart constructed from the data in Chart 6, where the average risk appetite of the downdraft group is subtracted from the average risk appetite of the missing upturn group.  The spread nudged higher this round.

This survey, we saw a huge market rally, and a muted move in client sentiment.  The overall fear numbers actually stayed the same when rounded to the nearest whole number.  Perhaps clients are looking for a more consistent rally than what we’ve seen so far before client sentiment turns around.  As of the writing of this report, it turns out that clients may have been right to stay on the sidelines to wait for a little bit more confirmation.  Once again, the overall risk appetite numbers remain the most faithful to what we understand client sentiment to be.  As the market rises, clients want more risk, and as the market falls, clients want less risk.

No one can predict the future, as we all know, so instead of prognosticating, we will sit back and enjoy the ride. A rigorously tested, systematic investment process provides a great deal of comfort for clients during these types of fearful, highly uncertain market environments. Until next time, good trading and thank you for participating.

As you know, when individuals self-report, they are always taller and more beautiful than when outside observers report their perceptions!  Instead of asking individual investors to self-report whether they are bullish or bearish, we’d like financial advisors to weigh in and report on the actual behavior of clients.  It’s two simple questions and will take no more than 20 seconds of your time. We’ll construct indicators from the data and report the results regularly on our blog–but we need your help to get a large statistical sample!

Click here to take Dorsey, Wright’s Client Sentiment Survey.

Contribute to the greater good!  It’s painless, we promise.

After the first 30 or so responses, the established pattern was simply magnified, so we are comfortable about the statistical validity of our sample. Most of the responses were from the U.S., but we also had multiple advisors respond from at least two other countries. Let’s get down to an analysis of the data! Note: You can click on any of the charts to enlarge them.

Question 1. Based on their behavior, are your clients currently more afraid of: a) getting caught in a stock market downdraft, or b) missing a stock market upturn?

Chart 1: Greatest Fear.  From survey to survey, the S&P rose around +1.7%, and client fear levels responded as expected.  Client fear levels dropped from 92% to 87%, while the opportunity camp rose from 8% to 13%.  Despite the minor bounce, client sentiment remains poor overall.

Chart 2. Greatest Fear Spread.  Another way to look at this data is to examine the spread between the two groups.  The spread fell from 84% to 74% this round.

Question 2. Based on their behavior, how would you rate your clients’ current appetite for risk?

Chart 3: Average Risk Appetite.  Overall risk appetite numbers rose this round, as they should in a rising market.  This survey the overall risk appetite average was 2.32, up from 2.10 from last time.  The overall numbers are still hovering around all-time survey lows.

Chart 4: Risk Appetite Bell Curve. This chart uses a bell curve to break out the percentage of respondents at each risk appetite level.  Once again, over half the respondents answered 2, and nearly a third answered 3.

Chart 5: Risk Appetite Bell Curve by Group. The next three charts use cross-sectional data. This chart plots the reported client risk appetite separately for the fear of downdraft and for the fear of missing upturn groups.  This bar chart sorts out as we expect, with the fear group looking for low risk and the opportunity group looking for more risk.

Chart 6: Average Risk Appetite by Group.  Both camps’ risk appetite rose this round with the market.  Nothing much to see here.

Chart 7: Risk Appetite Spread.  This is a spread chart constructed from the data in Chart 6, where the average risk appetite of the downdraft group is subtracted from the average risk appetite of the missing upturn group.  The spread nudged lower this round.

This survey, we saw a moderate rally in the market over two weeks, and all of our client sentiment indicators responded as they “should have.”  The overall fear levels fell, and the overal risk appetite numbers rose.  Everything performed as expected, which is nice to see.

No one can predict the future, as we all know, so instead of prognosticating, we will sit back and enjoy the ride. A rigorously tested, systematic investment process provides a great deal of comfort for clients during these types of fearful, highly uncertain market environments. Until next time, good trading and thank you for participating.

As you know, when individuals self-report, they are always taller and more beautiful than when outside observers report their perceptions!  Instead of asking individual investors to self-report whether they are bullish or bearish, we’d like financial advisors to weigh in and report on the actual behavior of clients.  It’s two simple questions and will take no more than 20 seconds of your time. We’ll construct indicators from the data and report the results regularly on our blog–but we need your help to get a large statistical sample!

Click here to take Dorsey, Wright’s Client Sentiment Survey.

Contribute to the greater good!  It’s painless, we promise.

After the first 30 or so responses, the established pattern was simply magnified, so we are comfortable about the statistical validity of our sample. Most of the responses were from the U.S., but we also had multiple advisors respond from at least two other countries. Let’s get down to an analysis of the data! Note: You can click on any of the charts to enlarge them.

Question 1. Based on their behavior, are your clients currently more afraid of: a) getting caught in a stock market downdraft, or b) missing a stock market upturn?

Chart 1: Greatest Fear.  From survey to survey, the S&P fell around -1.5%, and client fear levels nudged only slightly higher after a major move last round.  This round, client fear levels rose from 91% to 92%, while the opportunity group fell from 9% to 8%.  Client sentiment remains in the pits as the stock market continues to suffer the effects from an overall dreadful summer.

Chart 2. Greatest Fear Spread.  Another way to look at this data is to examine the spread between the two groups.  The spread rose from 82% to 84% this round.

Question 2. Based on their behavior, how would you rate your clients’ current appetite for risk?

Chart 3: Average Risk Appetite.  Overall risk appetite numbers fell by a large margin this round, from 2.28 to 2.10.  These overall risk appetite numbers are the lowest we’ve seen since September of 2010.  All in all, it’s been a rough few weeks for client sentiment for both of our major indicators.

Chart 4: Risk Appetite Bell Curve. This chart uses a bell curve to break out the percentage of respondents at each risk appetite level.  With overall risk appetite in the gutter, it’s no wonder that we see the majority of respondents (around 70% of all respondents) looking for either 1 or 2.

Chart 5: Risk Appetite Bell Curve by Group. The next three charts use cross-sectional data. This chart plots the reported client risk appetite separately for the fear of downdraft and for the fear of missing upturn groups.  This bar chart sorts out as we expect, with the fear group looking for low risk and the opportunity group looking for more risk.

Chart 6: Average Risk Appetite by Group.  Both camps’ risk appetite fell this round, and dramatically so.  The fear camp’s risk appetite is at the lowest we’ve seen since August of 2010.  The more volatile opportunity group’s average dropped dramatically, after a contrarian move up last survey.

Chart 7: Risk Appetite Spread.  This is a spread chart constructed from the data in Chart 6, where the average risk appetite of the downdraft group is subtracted from the average risk appetite of the missing upturn group.  The spread fell this round after hitting all-time highs last survey.

This survey, we saw the overall fear number tick higher in the face of a falling market.  The overall risk appetite number is now sitting at 1-year lows after a horrible summer for the stock market.  The stock market is now down 20% from recent highs, client sentiment is near 1-year lows, and the overall risk appetite numbers are terrible.  The only silver lining to this situation is that historically, clients have been terrible predictors of future stock market performance.  So when we see client sentiment at these levels, it could mean a rally is around the corner (we hope!).

No one can predict the future, as we all know, so instead of prognosticating, we will sit back and enjoy the ride. A rigorously tested, systematic investment process provides a great deal of comfort for clients during these types of fearful, highly uncertain market environments. Until next time, good trading and thank you for participating.

As you know, when individuals self-report, they are always taller and more beautiful than when outside observers report their perceptions!  Instead of asking individual investors to self-report whether they are bullish or bearish, we’d like financial advisors to weigh in and report on the actual behavior of clients.  It’s two simple questions and will take no more than 20 seconds of your time. We’ll construct indicators from the data and report the results regularly on our blog–but we need your help to get a large statistical sample!

Click here to take Dorsey, Wright’s Client Sentiment Survey.

Contribute to the greater good!  It’s painless, we promise.

After the first 30 or so responses, the established pattern was simply magnified, so we are comfortable about the statistical validity of our sample. Most of the responses were from the U.S., but we also had multiple advisors respond from at least two other countries. Let’s get down to an analysis of the data! Note: You can click on any of the charts to enlarge them.

Question 1. Based on their behavior, are your clients currently more afraid of: a) getting caught in a stock market downdraft, or b) missing a stock market upturn?

Chart 1: Greatest Fear.  From survey to survey, the S&P fell around (-1.8%), and client fear levels spiked in a big way.  This round, client fear levels jumped to 91% from 78%, while the opportunity group fell from 22% to 9%.  What’s interesting to note here is that it took a few extra weeks after the major market move before we saw the big spike in fear levels.  It might be that clients were away on vacation for the summer, and now that school is back in session, everyone is taking a hard look at the overall stock market and where they want to be positioned.  Whatever it is, sentiment levels are not pretty right now.

Chart 2. Greatest Fear Spread.  Another way to look at this data is to examine the spread between the two groups.  The spread jumped by a large margin, from 55% to 82%.

Question 2. Based on their behavior, how would you rate your clients’ current appetite for risk?

Chart 3: Average Risk Appetite.  Overall risk appetite numbers fell in-line with the market, but not to the same degree as the overall fear numbers.  The average risk appetite fell from 2.43 to 2.28 this round.

Chart 4: Risk Appetite Bell Curve. This chart uses a bell curve to break out the percentage of respondents at each risk appetite level.  Low risk continues to dominate client sentiment, with over half of all respondents wanting a risk appetite of 2.

Chart 5: Risk Appetite Bell Curve by Group. The next three charts use cross-sectional data. This chart plots the reported client risk appetite separately for the fear of downdraft and for the fear of missing upturn groups.  This bar chart sorts out as we expect, with the fear group looking for low risk and the opportunity group looking for more risk.

Chart 6: Average Risk Appetite by Group.  Here we see the opportunity group acting up again, like they are prone to do.  The opportunity group’s risk appetite bounced higher this round, while the fear group’s risk appetite moved slightly lower.

Chart 7: Risk Appetite Spread. This is a spread chart constructed from the data in Chart 6, where the average risk appetite of the downdraft group is subtracted from the average risk appetite of the missing upturn group.  The spread reached new all-time highs this round, as the two camps’ appetites moved in opposite directions.

This survey round, the overall fear numbers hit their highest levels since the market started to move lower at the beginning of the summer.  What’s interesting is the month or so time-lag it took for fear levels to jump after the market’s terrible summer.  Are people just coming back from vacation to see what’s been going on?  Or is this a deeper shift in client sentiment?  As usual, the overall risk appetite numbers moved in-sync with the market.

No one can predict the future, as we all know, so instead of prognosticating, we will sit back and enjoy the ride. A rigorously tested, systematic investment process provides a great deal of comfort for clients during these types of fearful, highly uncertain market environments. Until next time, good trading and thank you for participating.

As you know, when individuals self-report, they are always taller and more beautiful than when outside observers report their perceptions!  Instead of asking individual investors to self-report whether they are bullish or bearish, we’d like financial advisors to weigh in and report on the actual behavior of clients.  It’s two simple questions and will take no more than 20 seconds of your time. We’ll construct indicators from the data and report the results regularly on our blog–but we need your help to get a large statistical sample!

Click here to take Dorsey, Wright’s Client Sentiment Survey.

Contribute to the greater good!  It’s painless, we promise.

After the first 30 or so responses, the established pattern was simply magnified, so we are comfortable about the statistical validity of our sample. Most of the responses were from the U.S., but we also had multiple advisors respond from at least three other countries. Let’s get down to an analysis of the data! Note: You can click on any of the charts to enlarge them.

Question 1. Based on their behavior, are your clients currently more afraid of: a) getting caught in a stock market downdraft, or b) missing a stock market upturn?

Chart 1: Greatest Fear.  From survey to survey, the S&P was basically flat, and the fear numbers remained mostly the same.  Fear levels dropped from 79% to to 78%, while opportunity levels rose from 21% to 22%.  After an ugly summer, it seems as though clients are in a “wait and see” mode with regards to sentiment.

Chart 2. Greatest Fear Spread.  Another way to look at this data is to examine the spread between the two groups.  The spread fell slightly, from 58% to 55%.

Question 2. Based on their behavior, how would you rate your clients’ current appetite for risk?

Chart 3: Average Risk Appetite.  Overall risk appetite numbers reflected the same data as the overall fear numbers, with a very quiet move lower.  This round, the overall risk number fell from 2.49 to 2.44.

Chart 4: Risk Appetite Bell Curve. This chart uses a bell curve to break out the percentage of respondents at each risk appetite level.  Low risk continues to dominate client sentiment, with nearly half of all respondents looking for a risk level of 2.

Chart 5: Risk Appetite Bell Curve by Group. The next three charts use cross-sectional data. This chart plots the reported client risk appetite separately for the fear of downdraft and for the fear of missing upturn groups.  This bar chart sorts out as we expect, with the fear group looking for low risk and the opportunity group looking for more risk.

Chart 6: Average Risk Appetite by Group.  Both camps’ risk averages fell slightly this round, as the overall fear numbers show.  Nothing to really see here, move along!

Chart 7: Risk Appetite Spread. This is a spread chart constructed from the data in Chart 6, where the average risk appetite of the downdraft group is subtracted from the average risk appetite of the missing upturn group.  The spread dipped slightly this round, but still sits above its major range over the past year.

This survey round, fear levels continued to move lower on muted market action, and the other sentiment indicators pretty much fell into line.  Like the overall fear numbers, the risk appetite average ticked slightly lower.  Despite a major drawdown over the past two months, client sentiment seems to have found itself sitting in the mid 70′s for the time being.

No one can predict the future, as we all know, so instead of prognosticating, we will sit back and enjoy the ride. A rigorously tested, systematic investment process provides a great deal of comfort for clients during these types of fearful, highly uncertain market environments. Until next time, good trading and thank you for participating.

As you know, when individuals self-report, they are always taller and more beautiful than when outside observers report their perceptions!  Instead of asking individual investors to self-report whether they are bullish or bearish, we’d like financial advisors to weigh in and report on the actual behavior of clients.  It’s two simple questions and will take no more than 20 seconds of your time. We’ll construct indicators from the data and report the results regularly on our blog–but we need your help to get a large statistical sample!

Click here to take Dorsey, Wright’s Client Sentiment Survey.

Contribute to the greater good!  It’s painless, we promise.

After the first 30 or so responses, the established pattern was simply magnified, so we are comfortable about the statistical validity of our sample. Most of the responses were from the U.S., but we also had multiple advisors respond from at least three other countries. Let’s get down to an analysis of the data! Note: You can click on any of the charts to enlarge them.

Question 1. Based on their behavior, are your clients currently more afraid of: a) getting caught in a stock market downdraft, or b) missing a stock market upturn?

Chart 1: Greatest Fear. From survey to survey, the S&P fell -8.8%, and fear levels actually dropped.  This week, the survey results went completely opposite of what we would expect to happen.  Fear levels dropped from 88% to 79% survey to survey.  On the flip side, the missed opportunity camp rose from 12% to 21%.

Chart 2. Greatest Fear Spread. Another way to look at this data is to examine the spread between the two groups. The spread fell this round from 76% to 58%.

Question 2. Based on their behavior, how would you rate your clients’ current appetite for risk?

Chart 3: Average Risk Appetite.  Same as the overall fear numbers, average client sentiment actually rose in the face of a market meltdown.  We have no explanation for why this happened!  Average risk appetite rose from 2.31 to 2.49.

Chart 4: Risk Appetite Bell Curve. This chart uses a bell curve to break out the percentage of respondents at each risk appetite level.  Low risk appetite dominated this round, with the majority of respondents answering 2 and 3.

Chart 5: Risk Appetite Bell Curve by Group. The next three charts use cross-sectional data. This chart plots the reported client risk appetite separately for the fear of downdraft and for the fear of missing upturn groups. This chart also sorts out pretty much as expected, with the fear group wanting less risk and the opportunity group wanting more.  Neither camp seems to be able to stomach a risk appetite of 5 yet.

Chart 6: Average Risk Appetite by Group.  In line with the other indicators from this report, the average risk appetite by group bucked the hypothesis, as both groups wanted to add more risk.

Chart 7: Risk Appetite Spread. This is a spread chart constructed from the data in Chart 6, where the average risk appetite of the downdraft group is subtracted from the average risk appetite of the missing upturn group. The spread continued its move higher this round.

What a doozy!  We saw major market action over this survey period, and our indicators did not perform as we expected.  With the market down a whopping -8% from survey to survey, we were expecting fear levels to hit all-time highs.  Instead, fear levels actually dropped by a significant amount.  The overall risk appetite average reflected the same thing.  In the face of a major market meltdown, clients were looking to add risk and get in the market!  Is this a sign that clients have turned the page…that clients have finally learned their lesson?  Is this the beginning of a new era of emotional asset allocation?  I’ll bet “No,” but only time can tell!

No one can predict the future, as we all know, so instead of prognosticating, we will sit back and enjoy the ride. A rigorously tested, systematic investment process provides a great deal of comfort for clients during these types of fearful, highly uncertain market environments. Until next time, good trading and thank you for participating.

As you know, when individuals self-report, they are always taller and more beautiful than when outside observers report their perceptions!  Instead of asking individual investors to self-report whether they are bullish or bearish, we’d like financial advisors to weigh in and report on the actual behavior of clients.  It’s two simple questions and will take no more than 20 seconds of your time. We’ll construct indicators from the data and report the results regularly on our blog–but we need your help to get a large statistical sample!

Click here to take Dorsey, Wright’s Client Sentiment Survey.

Contribute to the greater good!  It’s painless, we promise.

After the first 30 or so responses, the established pattern was simply magnified, so we are comfortable about the statistical validity of our sample. Most of the responses were from the U.S., but we also had multiple advisors respond from at least three other countries. Let’s get down to an analysis of the data! Note: You can click on any of the charts to enlarge them.

Question 1. Based on their behavior, are your clients currently more afraid of: a) getting caught in a stock market downdraft, or b) missing a stock market upturn?

Chart 1: Greatest Fear. From survey to survey, the S&P fell -1.8%, and we saw the spike in fear levels we expected from the week before.  Client fear levels went from 78% to 88%, while opportunity levels dropped from 22% to 12%.  In light of today’s (8/8/11) market action, I wouldn’t be surprised if we hit new all-time fear level highs during the next survey.

Chart 2. Greatest Fear Spread. Another way to look at this data is to examine the spread between the two groups. The spread jumped this round from 56% to 76%.

Question 2. Based on their behavior, how would you rate your clients’ current appetite for risk?

Chart 3: Average Risk Appetite.  Average risk appetite fell this round from 2.42 to 2.31.  We’ve noticed the overall average risk numbers seem to have the best handle on the relationship between client sentiment and market action.  Here, we see falling risk appetite in light of falling market action, exactly as we would expect.

Chart 4: Risk Appetite Bell Curve. This chart uses a bell curve to break out the percentage of respondents at each risk appetite level.  Low risk appetite dominated this round, with more 1′s than we’ve seen in months.

Chart 5: Risk Appetite Bell Curve by Group. The next three charts use cross-sectional data. This chart plots the reported client risk appetite separately for the fear of downdraft and for the fear of missing upturn groups. This chart also sorts out pretty much as expected, with the fear group wanting less risk and the opportunity group wanting more.  There was only one response of 5, which came from the fear camp (troll or mis-click).

Chart 6: Average Risk Appetite by Group.  We had a standard move in both camps this week with regards to market action.  The fear group loaded up on low risk, while the opportunity group’s average fell just slightly.

Chart 7: Risk Appetite Spread. This is a spread chart constructed from the data in Chart 6, where the average risk appetite of the downdraft group is subtracted from the average risk appetite of the missing upturn group. The spread shot to the highest levels in over a year, as the fear group’s average plunged.

This survey round everything went exactly as expected.  The stock market continued to fall, fear levels rose and average risk appetites dropped.  It was as cookie-cutter as it gets, which is always nice when testing live feedback vs. hypotheses.  As I mentioned earlier, I would expect to see fear levels to be at or near their all-time highs in the upcoming survey based on the market action of the last week.

No one can predict the future, as we all know, so instead of prognosticating, we will sit back and enjoy the ride. A rigorously tested, systematic investment process provides a great deal of comfort for clients during these types of fearful, highly uncertain market environments. Until next time, good trading and thank you for participating.

After the first 30 or so responses, the established pattern was simply magnified, so we are comfortable about the statistical validity of our sample. Most of the responses were from the U.S., but we also had multiple advisors respond from at least four other countries. Let’s get down to an analysis of the data! Note: You can click on any of the charts to enlarge them.

Question 1. Based on their behavior, are your clients currently more afraid of: a) getting caught in a stock market downdraft, or b) missing a stock market upturn?

Chart 1: Greatest Fear. From survey to survey, the S&P fell -1.7%, but client fear levels managed to inch lower.  Usually on any down move, we’ll see an uptick in client fear.  It seems like the rally from two surveys ago (+5%) has left most clients with enough positivity to push fear levels lower.

Chart 2. Greatest Fear Spread. Another way to look at this data is to examine the spread between the two groups. Like the overall fear numbers, the spread nudged lower this round from 63% to 56%.

Question 2. Based on their behavior, how would you rate your clients’ current appetite for risk?

Chart 3: Average Risk Appetite.  Unlike the overall fear numbers, the average risk appetite fell in-line with the market, from 2.68 to 2.42.  If I had to pick just one indicator to gauge client sentiment real-time, it would have to be the overall average risk appetite number.  For some reason, the overall number seems to follow our expectations nearly every survey.  Following an up move, average risk goes up, and vice versa.

Chart 4: Risk Appetite Bell Curve. This chart uses a bell curve to break out the percentage of respondents at each risk appetite level. Fear is slowly moderating, but still in command.  2′s were the most common response this around (49%), trailed by 3′s (37%).

Chart 5: Risk Appetite Bell Curve by Group. The next three charts use cross-sectional data. This chart plots the reported client risk appetite separately for the fear of downdraft and for the fear of missing upturn groups. This chart also sorts out pretty much as expected, with the fear group wanting less risk and the opportunity group wanting more.  Note there are zero responses with a risk appetite of 5.

Chart 6: Average Risk Appetite by Group. A typical result this week (and the exact opposite of last week): investors fearful of a downturn had a lower risk appetite, while investors fearing missing an upturn increased their risk appetite.  The opportunity investors seem ready to add risk despite a minor pullback.

Chart 7: Risk Appetite Spread. This is a spread chart constructed from the data in Chart 6, where the average risk appetite of the downdraft group is subtracted from the average risk appetite of the missing upturn group. The spread shot right back up on the market downswing, after falling last round.

This survey round presents a few anomalies.  First, the overall fear numbers did the opposite of what we would expect in a falling market.  We saw a continued drop in fear levels, despite a market pullback.  I’d guess that move could be explained as a follow-through from the survey before, when we saw fear levels plummet on a +5% market move.  On the other hand, we saw average risk appetite move in-line with the market, falling as the market dropped.  The overall average risk appetite numbers continue to perform the most consistently through the week-to-week market noise.

No one can predict the future, as we all know, so instead of prognosticating, we will sit back and enjoy the ride. A rigorously tested, systematic investment process provides a great deal of comfort for clients during these types of fearful, highly uncertain market environments. Until next time, good trading and thank you for participating.

As you know, when individuals self-report, they are always taller and more beautiful than when outside observers report their perceptions!  Instead of asking individual investors to self-report whether they are bullish or bearish, we’d like financial advisors to weigh in and report on the actual behavior of clients.  It’s two simple questions and will take no more than 20 seconds of your time. We’ll construct indicators from the data and report the results regularly on our blog–but we need your help to get a large statistical sample!

Click here to take Dorsey, Wright’s Client Sentiment Survey.

Contribute to the greater good!  It’s painless, we promise.

After the first 30 or so responses, the established pattern was simply magnified, so we are comfortable about the statistical validity of our sample. Most of the responses were from the U.S., but we also had multiple advisors respond from at least four other countries. Let’s get down to an analysis of the data! Note: You can click on any of the charts to enlarge them.

Question 1. Based on their behavior, are your clients currently more afraid of: a) getting caught in a stock market downdraft, or b) missing a stock market upturn?

Chart 1: Greatest Fear. From survey to survey, the S&P was up 5.3%, and client fear levels ticked lower from 94% to 82%. Although fear is still at a relatively high level given how well the market has done over the past year, the recent bounce in the market has caused clients to be a little less worried.

When the market hit fear levels in the mid-90s last summer, the market had a very good following year.  We can only hope that history will repeat itself!

Chart 2. Greatest Fear Spread. Another way to look at this data is to examine the spread between the two groups. The spread dropped dramatically, from 88% to 63% this round.

Question 2. Based on their behavior, how would you rate your clients’ current appetite for risk?

Chart 3: Average Risk Appetite. Average risk moved higher from survey to survey, from 2.44 to 2.68. Clients normally respond to recent activity in the market, and since the market was up over 5% since the last survey, the increase in risk appetite is not a big surprise.  One positive: clients did not go off the deep end this summer during the correction like they did last summer.  Last year, average risk appetite dropped as low as 2.03 during the worst client pessimism.  This summer it reached only 2.44.

Chart 4: Risk Appetite Bell Curve. This chart uses a bell curve to break out the percentage of respondents at each risk appetite level. Fear is slowly moderating.  The central tendency is a risk appetite of 3, but there are still many more 2s (a robust 36%) than 4s (only 12%).

Chart 5: Risk Appetite Bell Curve by Group. The next three charts use cross-sectional data. This chart plots the reported client risk appetite separately for the fear of downdraft and for the fear of missing upturn groups. This chart also sorts out pretty much as expected, with the fear group wanting less risk and the opportunity group wanting more.

Chart 6: Average Risk Appetite by Group. An interesting result this week: investors fearful of missing an upturn had a lower risk appetite, while investors fearing a downturn increased their risk appetite.  Fearful investors seem to have some concern about the market getting away from them on the upside.

Chart 7: Risk Appetite Spread. This is a spread chart constructed from the data in Chart 6, where the average risk appetite of the downdraft group is subtracted from the average risk appetite of the missing upturn group. The spread took a pronounced drop this week, although it’s still in the 0.5 to 1.0 range where it has stayed most of the past couple of years.

Although fear continues to dominate sentiment, we got a tick up in risk appetite this survey for the first time in a number of weeks.  It will be interesting to see if clients respond to the news environment around the budget compromise or if they stay primarily responsive to the market as they have in the past.

No one can predict the future, as we all know, so instead of prognosticating, we will sit back and enjoy the ride. A rigorously tested, systematic investment process provides a great deal of comfort for clients during these types of fearful, highly uncertain market environments. Until next time, good trading and thank you for participating.

As you know, when individuals self-report, they are always taller and more beautiful than when outside observers report their perceptions!  Instead of asking individual investors to self-report whether they are bullish or bearish, we’d like financial advisors to weigh in and report on the actual behavior of clients.  It’s two simple questions and will take no more than 20 seconds of your time. We’ll construct indicators from the data and report the results regularly on our blog–but we need your help to get a large statistical sample!

Click here to take Dorsey, Wright’s Client Sentiment Survey.

Contribute to the greater good!  It’s painless, we promise.