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.
Hi Tiho. Thanks for your post. I would like to offer this chart with Gold on top and GDX underneath. A good time to consider buying both is when Williams % is oversold and is moving above the horizontal blue line...no guarantees but it has worked well in the past. Likewise as you can see in the recent move I highlight the sell point when williams percentage dropped from overbought.
ReplyDeletehttp://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2094095&cmd=show[s210659846]&disp=P
The chart is very interesting as it focuses on Gold's tops now, as opposed to its bottoms during the last three years.
ReplyDeleteWhy would one focus on Golds tops? Well.... Gold, being up 11 years in the row, definitely posses a risk for all PMs investors, because a down year for Gold - which would be normal within the context of a secular bull market - could send the price lower than $1,500 in 2012. The next major support is $1,300, which is quite a way down...
And a down year will happen for sure, one of these years, within a secular bull.
Thanks for your comments on my charts. I must be missing something here in terms of your comments on focusing on Gold's tops. The chart is focusing on Gold's bottoms. The chart attempts to show the buy points from oversold. Wait for oversold and when the williams percentage moves above the horizontal line consider going long gold and gdx. Also notice that the 150 day moving average worked in perfect harmony until recently. Later I will post a weekly chart which uses what I consider to be the premier moving average for gold weekly..the 65 week ema. Thanks again for your posts and I look forward to reading them..quite insightful.
DeleteCorrection...I only put the last top on the chart to show someone else at another site who was going long gold so that he would realize that it was more likely a top of some kind and to be cautious with a long. This is all just a guideline for risk reward and as you know not a certainty in terms of outcomes. Thanks.
DeleteI understand, but with a trend change where Gold is not trending upwards into the sky anymore, it seems that indicators work for picking tops too. That means we are either in a downtrend for awhile or at best in a trading range / consolidation.
DeleteSecular bull market is far from over, but Gold correction might not be completely over. It is still looking very weak from week to week...
Totally agree.
Deletep.s. You have a great election of charts on your stock charts page. I've spent a bit of timing going through them all. Very nice!
ReplyDeleteMepitre: with the recent change at stockcharts your public book is no longer available. Could you restrore it? - Thanks so much. I found it very helpful too. Joe
ReplyDelete