Market participants look at many measures to gauge investor sentiment, even though it doesn't always show an accurate picture. The
CBOE Volatility Index
(VIX), often referred to as the fear index, shows the market's expectation of 30-day volatility, but it does not parse out institutional or hedge fund activity. Surveys like the Thomson Reuters/University of Michigan Consumer Sentiment, AAII online portals and broker polls are not always consistent with investing behavior. Mutual Fund Flows capture money flows in and out, but are outflows going to other investments?
Now there is a more accurate measure of true retail behavior from TD Ameritrade (AMTD). The Investor Movement Index (IMX) leverages data from from one of the largest pools of retail investors and traders in the world to create a behavior-based proprietary index which provides insight into Main Street Sentiment.
Who is included?
All accounts with $2,000+ in assets and have traded in the last month, representing almost six million accounts.
What is included?
Equities, Options, ETFs, Bonds, Mutual Funds, Cash.
What about leverage?
The riskier the portfolio exposure, the more intensely bullish OR bearish the portfolio is scored. Taken into consideration are, Margin, Options, Higher Beta Stocks, Leveraged ETFs.
How is it calculated?
Each portfolio is assigned a score. Each portfolio counts as one "vote". The IMX is the median of all the portfolio scores.
The latest March 2013 Investor Movement Index for the five weeks ending March 28, 2013, reveals:
¿ Score: 5.37 (compared to 5.14 in February)
¿ Trend direction: Positive (trend direction shows whether the month-over-month change in score is positive or negative or whether there is no change.)
¿ Trend length: 2 months (number of consecutive months the trend direction has been positive or negative)
¿ Score relative to historic ranges: High (latest month's score as compared to the historical data range)
"TD Ameritrade has the largest retail order flow. 40% of the accounts are derivative based, which is why the IMX gives the most complete picture of retail investor sentiment," said Steve Quirk who oversees the strategy and deployment of initiatives for the Active Trader segment at TD Ameritrade.
Following a spike in February, the IMX numbers for March are currently the highest the Company has on record since June 2011, adding to an ongoing bullish trend among the Company's retail investor base spanning seven of the past nine months. TD Ameritrade's retail clients continued to rotate their positions throughout the month, selling securities at highs and buying into lows. March also saw an increased number of clients seeking out stocks with higher dividend yields and holding positions with higher relative volatility compared to that of the general market.
"Buying low and selling high is attributed to the educational content and resources available to the retail trader to bring them more in line with the pros. Our retail clients are more actively managing their portfolios and hunting for yield. They are proactively hedging, buying some protection relatively cheap or selling covered calls for income," Quirk added. "We are seeing money flows rotating among sectors and asset classes as our clients seek to identify out and underperformers."
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