NAAIM Exposure Index || What is and How to Use It

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The NAAIM Exposure Index is an interesting indicator that shows the investor’s sentiment.

NAAIM is an association of companies specializing in the management of active funds in the United States.

Each week these managed accounts must report their exposure on the stock market.

 

The answers provided by these operators can be of 5 types:

1. 200% Leveraged Short.

2. 100% Fully Short.

3. 0% (100% Cash or Hedged to Market Neutral).

 

As with most sentiment indicators, the NAAIM Exposure Index is a contrarian type indicator.

A high net long position is bearish for the stock market.

This is because this category of operators has already gone long during the uptrend.

 

Short net exposure may instead be bullish for equities.

This is because it may force this category of traders to chase a bullish reversal by the market.

 

Looking at performing the NAAIM Exposure Index in the medium term, when its value is greater than 80%, it registers an excess of optimism.

 

This situation often signals the achievement of a maximum of the short-term stock market.

For Example, when the NAAIM Exposure Index value is less than 20%, it records an excess of pessimism.

This situation often signals the achievement of a short-term minimum on the stock market.

 

To analyze the data collected in the survey, they construct the level of Confidence present in the responses provided by the managers.

 

Above all, confidence is the standard deviation of the survey responses.

The high volatility of responses shows that there is a lot of dispersion in responses among managers.

Finally, low volatility shows that managers’ responses are converging instead.

 

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My name is Luca. I grew up in Italy. I have a degree in law and I’m an independent trader since 2007. I’m a systematic trader and sometimes, I trade using options strategies with US ETFs and Stocks.I have built hundreds of automated trading systems and indicators for TradeStation, MultiCharts and MetaTrader.I started this blog in 2017 to share what I learned in the financial market.

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