A curious chart from BAML showing that investors are heavily hedged against a sharp market decline:
Sentiment surveys such as this one are generally only useful at extremes and according to this chart we are at an extreme in terms of market participant hedging. While it would generally be a bullish contrarian indicator to have such a large number of market participants hedging, this survey appears to be polling some of the best market timers in history; they were hedged in late-2008, and had minimal hedges in place in early 2013 as equities launched into one of their best years on record.
It must be said that this chart offers a small sample size, therefore the most appropriate interpretation of this survey is to take a bullish view of equities in the near term. However, if these guys guess right again the BAML survey respondents will firmly move into the “smart money” camp.
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This is not investment advice. As always please do your own due diligence.