Global Macro Update
Equity Sentiment: Newsletter advisors track by Investor Intelligence Survey, became less bearish this week. According to this indicator, we are still no one near warning signals of a potential intermediate term market top.
Equity Volatility: Volatility Index track by CBOE, fell this week below 18 again. According to this indicator, we are have reduced volatility near levels where the market could, but doesn't necessarily have to, sell off.
Bond Sentiment: US Treasury 30 Year Long Bond yields refuse to rise in substantial manner despite a huge improvement in economic data, track by the Citigroup DMs Economic Surprise Index over the last couple of months. According to this indicator, yields should be trading at higher levels around 4%, however various Fed programs have artificially suppressed this market.
Credit Spreads: The spread between Merrill Lynch High Yield Bonds and equivalent maturity US Treasury Notes, continue to narrow. According to this indicator, we are witnessing an improvement in the corporate credit market, which is a positive outcome.
Gold Sentiment: GLD fund flows, tracked by a monthly 4 week rolling average, continue to show inflows into Gold, however at much more subdued level. According to this indicator, investors are definitely more bullish on the precious metal, compared to large outflows we witnessed at the end of 2011.
US Dollar Sentiment: Investor positioning on the US Dollar, tracked by the CFTC Commitment of Traders report, showed that investors are still bullish on the US Dollar, despite the recent sell off over the last several weeks. According to this indicator, investors became overly bullish on the US Dollar at the start of 2012, which most likely was a strong signal of a top.
Commodity Sentiment: Investor positioning in the Commodities market, tracked by the CFTC Commitment of Traders report, showed that investors are are becoming more bullish on the asset class. According to this indicator, investors became overly bearish on Commodities at the end of 2011, which most likely was a strong signal of a bottom.
Agriculture Sentiment: Investor positioning in the Agricultural Commodities market, tracked by the CFTC Commitment of Traders report, showed that investors are are becoming more bullish on the asset class, as well. According to this indicator, investors became overly bearish on Agriculture at the end of 2011, which most likely was a strong signal of a bottom.
Market Cycle Update
52 Week New Highs / Lows: The ratio between 52 Week New Highs and Lows, tracked by the NYSE data which is one of the most broadest indices out there, showed that bulls remain firmly in control of the market trend. We do have a short term cautious signal, where equities keep moving higher, while the 52 Week New Highs has failed to follow through. Having said that, we have no significant or major divergences that usually signal a major market top.
Note: I will be doing a Global Macro summary every weekend from now on. This should help majority of us to keep track on how various asset classes are performing and more importantly, how investors interact with these assets (bullish or bearish outlook / positioning). On top of that I will be focusing on the Market Cycle summary. I hope you enjoy the posts!
DJ transports and dj utility averages are not making new recovery highs.
ReplyDeleteBeen a good run off the lows............
Great update Tiho.
ReplyDeletecice post dude. what's your view on bonds yields?
ReplyDeletethey aren't following citigroup ESI
Thanks Tommy. Yes, you are correct in saying that.
DeleteIt seems that the Bond market is not paying as much attention to the economy as it is towards the Euro crisis and the potential for a bank failure or sovereign bond default.
Nicely done. I would caution that the dollar is in its timing band for a intermediate-term low. Since the current daily cycle could run 12-22 more days, we are likely to see that low in about 3-4 weeks, perhaps with a test of the 200DMA. Stock are also due for an intermediate-term low in late April, so seeing the DX rally out of mid-March in conjunction with a severe equity correction makes perfect sense.
ReplyDeleteNext dollar low could just be a dead cat bounce. At the same time stocks could correct slightly. I'm pretty sure that's Tiho's view.
ReplyDeleteActually I am not quite sure what the next low in Dollar will do and where it will occur. I do not follow cycles nor do I trade short term movements. However, as an investors, I think Commodities will keep moving higher due to the shortages and weakness of all currencies, including Dollar, Euro, Pound and Yen.
ReplyDeleteYour 2-piece write-up on the economy from November is all about the business cycle, and market cycles reflect the business cycle. While I also use macro data to develop a bias, cycle analysis provides my trade triggers, and has served me amazingly well.
ReplyDeleteCurrently, cycles strongly support your commodity expectations. The CRB came out of a major low in December and should maintain a general uptrend into early 2014. In fact, the behavior of the USD suggests this will be a time of massive price inflation.
On a near-term basis, the USD should begin a convincing bounce out of mid-March, probably coinciding with a significant equity correction. After those moves complete, the scary increases in commodity prices will kick off.
I read your blog now and have also covered previous posts too. From what I see, you know what you are doing as majority of the time your calls are discussing the right issues at the right time - very very impressive! That in itself deserves a lot of respect, so I give credit where its due. I plan to read your blog with high interest in the future as well, because your style is very different to mine majority of the time, and yet we come to same conclusions.
ReplyDeleteThe only link I can make to my own style of investment, is that you anticipate movements, instead of react to them. I think that comes from the ability to always be contrarian and follow sentiment closely. I try to have a similar approach and as I always say, you are either a contrarian or a victim!
However, what I do not do is relay too much on price and time predictions. I do not use technical patterns predictions, I do not bother with targets, I do not bother with cycles of timing the future. And while I use correlations from time to time, I do not relay on them like so many other "gurus". I think focusing on every asset class on its own first and foremost is the most important thing an investor can learn!
So I pretty much do not predict what will happen, I just focus on what is happening right now and than I make my decision from there. In other words, if everyone is selling an asset in a secular bull market, and that asset is extremely oversold, yet the fundamentals of demand & supply are still favourable, I will try and buy it as selling exhausts itself.
Do I know what level that will happen at? No, I try and let majority of selling exhaust in real time. Do I know what will happen next? No. Do I have price targets or time cycle targets? No, I do not try and predict things.
That doesn't mean all of these tools do not work for others, but I am just confident in things that have worked for me already and continue to keep working right now. I still read a lot of material from a lot of sources to gage what majority are doing. And that finally brings me to the topic of replying to your outlook:
I actually do not know what the Dollar is going to do next in the short term, nor do I know what the stock market or commodities will do from here in the short term either. What I have done already is bought some Agriculture and Silver in middle and end of December respectively, and than bought some Swiss Francs in middle of January.
What am I doing right now? I am not buying or selling anything right now actually, I am just sitting and watching how the following few weeks play out. As a matter of fact, about 95% of the time, I do nothing apart from just watch, when it comes to investing. So many people are always buying and selling things, and they probably find my blog boring...
I've just found your blog - an interesting and thought-provoking read.
ReplyDeleteDo you have a good source for the DSI and other sentiment indexes?