Global Macro Update: Euro Short Squeeze On Track

Global Macro Update

Equites & Bonds: Bearish newsletter advisors tracked by Investor Intelligence Survey, have fallen further this week, as the market hangs around 1,400 area. Volatility Index track by CBOE, has remained at very low 14 point reading, similar to that of last week. US Treasury 30 Year Long Bond yields broke out of their trading range, but this week pulled back a bit. Finally, spread between Merrill Lynch High Yield Bonds and equivalent maturity US Treasury Notes continues to improve. However, divergence between the credit market and equity market is now quite evident.

Currencies & Commodities: GLD fund flows, tracked by a 4 week rolling average, showed outflows remained, but pulled back slightly. Positioning on the US Dollar, tracked by the CFTC Commitment of Traders report, showed that investors decreased bullish bets on the currency my almost half. The market still remains net short the Euro, the Pound, the Yen and the Swiss Franc, while decreased bullish bets on Aussie and Kiwi Dollars were substantial this week. At the same time, positioning in the Commodities market showed similar readings for a few weeks now.

Market Breadth Update

New Highs And Lows: The ratio between 52 Week New Highs and Lows, tracked by the NYSE data, showed that bulls remain in control of the market trend, however the new highs in the index price are not confirmed by new 52 Week Highs. This bearish divergence is now turning into a serious warning signal for a potential correction to develop anytime soon.

Advance Decline Line: The ratio between Advancers versus Decliners, tracked over 21 days or one month by the NYSE data, showed that advancing breadth is only slightly in control of the market trend. The currently rally is slowing running out of steaming, as the AD line is diverging from the markets higher high movement.

Trading Above 200 MA: The Percentage of Stocks Trading Above 200 MA, tracked by the S&P data, also shows that bulls remain in control of the market trend. In this indicator, we still have no significant bearish divergences that usually signal a major market top. More than 80% of the S&P 500 components are above their respective 200 day moving average, which is a good sign.

This Weeks Focus

This weeks focus turns me to the Euro Dollar exchange rate again. I guess I have been a sole voice when it comes to Dollar pessimism, continually forecasting that it has topped back in January of this year. It has been a hard battle to remain bearish, while any other websites, blogs or forums have been and still are predicting for the Euro to crash and Dollar to spike.

I believe the Euro is getting ready to take out its downtrend line and break out with a higher high sometime soon. The short squeeze continues and it is pushing the Euro higher. I also believe Silver will follow too, as they have very high correlation (inverse to the Dollar). Therefore, keep your eye out on the Euro Dollar exchange rate in coming weeks for further clues regarding not only Silver, but the overall Commodity complex, which still remains in a secular bull market, despite its cyclical correction over the last 12 months or so.