Global Macro Update: Investors Add To Commodities

Global Macro Update

Equity Sentiment: Newsletter advisors track by Investor Intelligence Survey, slightly increased this week. According to this indicator, we are still no one near warning signals of a potential intermediate term market top, while at the same time advisors are no where near extreme bearishness warning us of a potential intermediate term market bottom either. Reading: Neutral.

Equity Volatility: Volatility Index track by CBOE, remained below 18 this week, as we slowly approached the 16 handle. According to this indicator, we are have reduced volatility near levels where the market could, but doesn't necessarily have to, top and sell off. Reading: Bearish.

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 3½ to 4%, however various Fed programs have artificially suppressed this market. Reading: Bearish.

Credit Spreads: The spread between Merrill Lynch High Yield Bonds and equivalent maturity US Treasury Notes, continue to narrow again. According to this indicator, we are witnessing an improvement in the corporate credit market, which is a positive outcome. Reading: Bullish.

Gold Sentiment: GLD fund flows, tracked by a monthly 4 week rolling average, continue to show inflows into Gold, increasing this week. According to this indicator, investors are definitely more bullish on the precious metal, compared to large outflows we witnessed at the end of 2011. Reading: Bearish.

US Dollar Sentiment: Positioning on the US Dollar, tracked by the CFTC Commitment of Traders report, showed that investors are still bullish, 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. Reading: Bearish.

Commodity Sentiment: 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 again this week. 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. Reading: Neutral.

Agriculture Sentiment: 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, however only added slightly this week. 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. They still remain close to those bearish levels. Reading: Bullish.

Market Cycle Update

New Highs And 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 on closing basis, 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 just yet. Reading: Bullish.

Advance Decline Line: The ratio between Advancers versus Decliners, tracked over 21 days or one month by the NYSE data which is one of the most broadest indices out there, showed that advancing breadth is still in control of the market trend. We do have a short term cautious signal in this indicator as well, where equities keep moving higher on closing basis, while the Advance Decline ratio has failed to follow through. Having said that, we have no significant or major divergences that usually signal a major market top here either. Reading: Bullish.

Trading Above MAs: Overall market health as well as the current trend, can best be determined by following sector components trading above various moving averages, tracked by the NYSE data which is one of the most broadest indices out there. As we can see in the table above, over the short term perspective only two sectors are in a downtrend, while over the medium as well as long term perspective only one sector is in a mild downtrend for each measure. Majority of sectors are showing both medium term as well as long term breadth strength. Reading: Bullish.