Global Macro Update
Equites & Bonds: Bearish newsletter advisors tracked by Investor Intelligence Survey, have remained constant for weeks, which is quite puzzling. One important aspect is that these guys refuse to get less bearish, despite markets tremendous rally over the last few weeks. At the same time Volatility Index track by CBOE, has collapsed towards 14 and now stands at lows last seen since 2007. US Treasury 30 Year Long Bond yields broke out of their trading range and into 3 and half percent handle. This makes the current equity market rally even more overvalued, as higher yields create competition for investment dollars. Spread between Merrill Lynch High Yield Bonds and equivalent maturity US Treasury Notes remained similar to a week before. 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 are now pushing towards $5 billion as of this week. This is now an extreme level of selling panic, which usually tends to bottom Precious Metals in coming days. Positioning on the US Dollar, tracked by the CFTC Commitment of Traders report, showed that investors increased bullish bets on the currency once again. The market is now net short the Euro, the Pound, the Yen and the Swiss Franc and seems to be fascinated with being long the Dollar. At the same time, positioning in the Commodities market showed that investors scaled back their bullish bets slightly this week. Positioning in the Agricultural Commodities market showed a similar movement in money flows too. Furthermore, consider the chart below:
One interesting development in the Agricultural market, is that after months of falling, Coffee speculators have now turned bearish on the commodity and are net short, for the first time since the Lehman Brothers bankruptcy. This is usually a good signal that the bear market is ending, so we could expect the prices to start forming a bottom or a base in coming weeks.
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.
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 have no significant or major bearish divergences, that usually signal a major market top. More than 86% of the S&P 500 components are above their respective 200 day moving average.
Finally, back in early February, I asked you guys weather you thought the S&P 500 will trade at 1,300 or 1,400 first. The results are re-posted below: