Global Macro Update
Equites & Bonds: Bearish newsletter advisors tracked by Investor Intelligence Survey, have remained quite constant for weeks now. There seems to be no major change in opinion from these "gurus". At the same time Volatility Index track by CBOE, has returned back to 17 or so, after a mid-week jump towards 21. US Treasury 30 Year Long Bond yields are slowly rising after a good jobs report. Finally, the spread between Merrill Lynch High Yield Bonds and equivalent maturity US Treasury Notes, slightly widened this week. There is quite a divergence here now, where S&P 500 has managed a new closing high, while Credit Spreads have not returned to the low levels we saw in early 2011.
Currencies & Commodities: GLD fund flows, tracked by a 4 week rolling average, showed slight outflows this week. Positioning on the US Dollar, tracked by the CFTC Commitment of Traders report, showed that investors increased bullish bets on the currency. At the same time, positioning in the Commodities market showed that investors are are becoming very bullish on the asset class. Positioning in the Agricultural Commodities market increased towards even further this week, with majority of the optimism shown in the Grains market with Corn and Soybeans. Soft commodities, like Coffee, still remain out of favour.
Market Breadth Update
Sector Breadth: Overall market health as well as the current trend, can best be determined by following sector components trading above various moving averages. As we can see in the table above, last week we saw a recovery in short term breadth, where overwhelming majority of sectors now have more than 50% of their components above the 10 day moving average. Market breadth remains very healthy over the medium and long term as well, and it is very good to see cyclicals leading the way. Having said that, we are still prone for a pullback or a correction at any time that could be between 5% to 10% and could last between 5 to 20 days.
The chart above is the picture of long term breadth from SentimenTrader website. As we can see the Gold Miners Summation Index is currently trading at levels where we could expect an intermediate or even long term bottom. At the same time, a huge majority of the Gold mining stocks are trading below the 200 day MA and we do not see any new 52 week highs, but instead constant readings of 52 week new lows. Gold Miners continue to be the sector out of favour with investors as the bear market / consolidation phase ha snow last for almost a year and half. Having said that, I believe this sector is one of the best places to be invested in for the long term, when it comes to buying equities. One more sell off could create a panic bottom that I would be looking at buying.