Wednesday, March 28, 2012

Interview: Jim Rogers On Rising Debt & Commodities

Portfolio Update: Re-Balancing Of Portfolio

It has been awhile since I've posted about what I am doing in the market, because to be quite honest there hasn't been anything new. I am still bullish on Silver, on Agriculture and bearish on the US Dollar. Here are some new points to note about the funds portfolio:
  • The recent sell off in Silver from $37.50 around the start of the month, towards $31 into late last week is an opportunity in my opinion. I have added some positions through COMEX futures and through iShares SLV ETF, and reduce some positions from the Sprott Physical ETF. I still hold similar exposure, but I just diversified my holdings into different vehicles. Update: Re-Balancing Exposure
  • Rogers Agriculture RJA ETF has had a decent bounce from the lows since we bought it. I think majority of the time, assets do not bottom on a V trough and that is what we have here. Therefore I closed the position for a decent profit and expect a retest of lows. At that point I will most likely add the position again. Update: Taking Profits
  • Shorting US Dollar through buying Swiss Franc is still a position I hold without any changes. I remain bullish on the Euro, so since Franc is pegged to it, it should do as well as the Euro or possibly even better. Update: Holding Position
New ideas, opinions, opportunities and positions:
  • Rice futures look very interesting for a break out from a bottoming base around here. I have minimum position as a trade more than anything else, but this is through one of my personal accounts.
  • Soft commodities have under-performed all other risk assets including equities, junk bonds, energy, metals, grains, commodity currencies and pretty much all other asset classes to be honest. Coffee, Cotton and Sugar are depressed at these levels and are a great opportunity, so watch for the end of the bear market here, which started in early 2011.
  • Apple has gone parabolic, which majority of you already know. I'm thinking about adding some long dated Puts on this company as a hedge for my commodity longs. It won't cost me more than a few percentage points of NAV, but the risk to reward is insane if the price crashes to the downside.
I'll be updating the Portfolio Page sometime at the end of the month, start of new month. As always it is interesting to hear opinions, so do share...

Saturday, March 24, 2012

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.

Tuesday, March 20, 2012

Commodities: Gold's Risk Scenario

Introduction
Majority of you know I am a US Dollar bear and Precious Metals bull in the long term. I have actually held the same view from the short term perspective and invested accordingly in my fund. Despite my strong belief in my own views, a good fund managers should always question potential scenarios which occur in the opposite manner to the way one plans it.
In the following short article, I will put forward a potential risk scenario where my bullish PMs outlook ends up being wrong or delayed (depending on what word you would like to use) for a year as this asset class could suffer a major correction. Before I continue, I would like to remind you all of the poll we held earlier this year on the blog, which showed that the overwhelming majority were bullish on the PMs sector.

Gold's Risk Scenario
I am long PMs (Silver) and also short the US Dollar. However, I must admit that one of the major risk scenario to my bullish view is Gold itself. The price of Gold is now up 11 years in the row. That in itself is a worry, because that type of a hot streak is such a rare occurrence in the market environment. Let me explain.
From 1982 secular bull in stocks, until the 2000 tech bubble peak, S&P 500 never posted 9, 10 or even 11 years of gains in the row. It is actually very rare for any asset to do so according to history. I did a bit of research and found that one of the last major assets was Nikkei 225 into 1990 before crashing 66%. Last secular bull in PMs during 1970s also never recorded gains anywhere close to 10 or even 11 straight years in the row.

Educated Retail Investors
Retail investors are becoming smarter and investment business has changed a lot since the internet has started flourishing the last decade. Today, a lot of retail investors on blogs and forums understand secular bull market in PMs is alive and well. They do not trust government fait currencies and have been buying up precious metals for awhile now. I congratulate these folks!

However, markets are not as easy as the paragraph above sounds, so the story plays out with a lot of twists before "The End" occurs, similar to reading a book. You see majority of people learn about secular markets and than buy up as much Gold and Silver as possible waiting to get rich, because they know how it will all end. The problem is that you cannot just skip to the end of the book and read the final chapter. There are chapters in between and they are quite important when participating in a bull market.

Bull Traps Are Common In Bull Markets
Most retail investors today believe that the PMs bull market will end soon with a major spike occurring in coming couple of years. That is possible of course. Having said that, I personally believe that there is a decent chance a major correction will occur first, similar to that of the 1970s. It doesn't have to be the same, but in 1970's Gold had a huge run up into 1974. It than fell over 40% in a space of a year or so and took out a lot of weak hands (and strong ones too) in a major correction, which tends to be titled a bull trap. Just as it looked like it was all over for Gold, it than spiked almost 9 times from $100 or so all the ay to almost $900 in intra day ($850 closing basis) in January of 1980.
Now, look at Gold in the last three or four years. Gold bottomed in October 2008 around $680 and rallied for three years straight topping at around $1,920 into August 2011. Now if you think about it from a basic common sense stance, that is quite a big move. Since than Gold has dropped almost 21% into late December 2011 low around $1,530. Is that enough of a pullback after an impressive 3 year move? Is that enough of a correction after 11 years of gains in the row?

Technicals Point To More Downside
I do not like using technical analysis too much, but consider the following. When we look at the weekly chart, the price has not traded properly below 200 MA for 3 years, RSI has not been below 50 for over 3 years as well, and finally MACD has not been below 0 for over 3 years too. These momentum indicators tend to be more useful on longer time frames like weekly or monthly charts and for Gold, it is looking like all of these indicators need to mean revert and reset themselves by becoming more oversold from a weekly perspective. Finally, despite Gold's correction last year into late December of 21% (bear market), we have actually not even retraced 38% Fibonacci level. A 50% common retracement puts Gold at $1,300 believe it or not.


Summary
From a contrarian point of view, we should consider the possibility of the economy surprising majority by having a great year (during elections especially), while Gold has first annual loss since the secular bull started a decade ago. In other words, even though I am invested on the long side in the Precious Metals market, I admit that there is a strong possibility of a 1975 replay, where Gold could fall hard to shake majority out in a bull trap. Bull markets climb a wall of worry and disbelief; so prices cannot and will not go higher if majority are expecting a secular bubble spike in the next week or month or year to begin. Please remember, this is not my prediction and I would not short a secular bull market. I am just putting forward a potential outcome, which should not surprise the wiser ones amongst us.

Monday, March 19, 2012

Global Macro Update: Precious Metals Selling

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:

Thursday, March 15, 2012

Currencies: Economy Could Disappoint & Weaken The Dollar

Note: This article has now been slightly updated, since its original version was posted yesterday.

A quick update on the state of currency markets, economic data and investor positioning. On the weekend, instead of doing a Global Macro Summary, I will be discussing the recent crash in the Japanese Yen and seeing weather or not it represents a buying opportunity.

Federal Reserve vs Economic Data
Since the good jobs data surprised majority of us traders, economists and fund manager, the market itself through the help of media, is now in speculation mode that additional Federal Reserve stimulus will not be needed. In other words, the market is acting like QE3 might be off the table. Ben Bernanke disagrees, sort of. He has made it clear that while the US economy is improving in the short term, QE3 option still remains on the table if things were to turn for the worse. The fact that it is not going to happen as early as some thought, has disappointed investors in many asset classes.
These investors, or for a better lack of a word junkies, who seem to react to stimulus a.k.a. money printing news, similar to that of a junkie discussing a topic of more drug hits, have now sold off Treasury Bonds, Gold, Euro and Japanese Yen quite hard, all in favour of US Dollar gains. Some assets have corrected more than others, with an example of Silver being down almost 17% since the start of the month. But let us remember General Benrnake's words, which states that more stimulus is not of the table, but just postponed for now. What would bring it back on the discussion table?
Under-performance of economic data and downside surprises to economists forecasts, would be the correct answer, and according to the Citigroup Economic Surprise Indices ranging from Developed Markets to Emerging Markets, we seem to have a rollover occurring just as the market is the most bullish on the US Dollar. If good economic data takes stimulus talk off the table and sells off currencies in favour of the US Dollar, than from a contrarian point of view, bad economic data prior to elections in November might prompt Money Printer Ben to do another injection of drugs to all the junkies.

Dollar Is Technically Overbought
I do not fancy myself as a short term trader and this blog does not focus on such technical swing trading analysis very often, having said that, recent US Dollar rally has pushed into overbought levels against many foreign currencies from the short term perspective, including Swiss Franc and Japanese Yen, together with Precious Metals like Gold and Silver.

Furthermore, following the US Dollar Index, also known as DXY, is not the best way to gage Dollars strength and its future moves. How strong is the Dollar really? As we can see in the chart below, not as strong as you might think. While the DXY Index is still above 80, Trade Weighted Dollar is struggling. As a matter of fact, the chart shows how Dollar, through the Trade Weighted Broad Index, has been weaker and weaker against majority of the global currencies. On the other hand DXY "looks" like a stronger version only because it is heavily weighted towards the Euro.
Greenback rally started across the board in early May 2011 as the QE2 sell off ended and after 11 months of rallying, TW Dollar it is still only as high as its November 2010 and October 2009 low. How is that for a bullish move when it comes to the King Dollar? Not very bullish if you ask me. You'd expect a lot more gains over an 11 month period. The thing is, majority now hold Dollars and are expecting further gains towards new highs (chart below), while in late 2009, late 2010 or even in middle of 2011 we had insane level of Dollar shorts.
Last weeks COT reports showed a build up in short contracts against the Euro, Pound, Yen and Swiss Franc, while the market reduced long positions in the commodity currencies. Tomorrow's report will most likely show even more shorts added against the Euro, Pound, Franc and the Yen, and further cutting of long positions in the commodity currency complex. In my opinion, it is not a good time to be bullish on the US Dollar, when majority of Dumb Money are also on the same side of the boat.

Sunday, March 11, 2012

Global Macro Update: Gold Miners Disliked

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.

Thursday, March 8, 2012

Portfolio Update: No Changes

I have received a few emails about the markets and how I am playing things right now as we had a huge sell off recently. Everything I have already done is on the portfolio page, which can be clicked in the toolbar above.

I've been asked if I am shorting stocks or if I am buying the current dip or what am I buying or selling right now etc etc etc. To be honest, I did buy some Japanese Yen on Monday, just before the equity / commodity correction started for my personal trading account in very small quantities, but when it comes to my fund, the answer is I am doing absolutely nothing. Here is some wisdom which might help you understand where I am coming from:
"One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do. Most people, always have to be playing: they always have to be doing something." ~ Jim Rogers
I am just sitting and watching...

Tuesday, March 6, 2012

Currencies: Dollar Still In Downtrend

Introduction
Back in middle of January, I wrote a two piece article letting investors know that the US Dollar rally, which started around May 2011, was about to top out (Articles: Dollar Rally Ending - Part I & Part II). Back than, there was an universal feeling that the Europe was about to fall of a cliff, the US and EU were about to enter a recession and China was going to have a hard landing. Putting forward a Dollar top article was far from consensus, as majority believed new highs for the Dollar were just around the corner.

The two piece article I wrote, focused on the global broad Dollar strength, improved credit conditions within Europe removing the need for Dollar financing demand, and finally extreme bullish sentiment on the currency. On January 21st, in the Part II of the article, I conclude that:
"...the Dollar strength is not broad anymore, while sentiment and technicals imply bearish outcomes lay ahead. Going long the Euro as a contrarian, right around these levels might look like a smart move, but the Euro itself is also a sick currency. The same is true with the British Pound as well, so it is best to stay away from these three ugly sisters. Therefore, investors should short the US Dollar with other currencies that have better fundamentals, including the Swiss Franc, Australian Dollar, Korean Won, Canadian Dollar, Singapore Dollar, Norwegian Krone or Swedish Krona."
Since their respective bottoms, major currencies globally have rallied a lot against the US Dollar. Consider that as of today, the Australian Dollar is up over 13% since its October 2011 lows, New Zealand Dollar is up over 10% since its December 2011 lows, Canadian Dollar is up more than 6.5% since its October 2011 lows, Mexican Peso is up over 10% since its November 2011 lows, Norwegian Krone and Swedish Krona are almost 8% and 5% respectively since its Janurary 2012 lows, amongst many others. As we can see, over the last several months, it has been a awfully costly ride for US Dollar bulls. Amazingly, these same bulls still remain bullish and now they expect new highs above the January peak.

Dollar Rally?
After such a weak performance, we should not be surprised to see the Dollar rallying over the last week or so. Counter trend rallies, also known as corrections, are quite normal within a major trend. Risk assets have enjoyed a strong run up in recent months too, so as these assets experience corrections from time to time, the Dollar should of course rally for awhile due to the inverse correlation.

What really surprises me however, is how many investors from Bloomberg to CNBC, together with well respected bloggers and technical newsletters, all now expect the US Dollar Index to make a new 52 week high above 81.50 top back in middle of January. So why do I differ from this view? To answer that question, first of all, I will explain Dollar bulls thinking process and than I will try to explain why I think it will prove wrong... again!
To start of with, the Dollar bulls prefer using the chart above - DXY or US Dollar Index. These investors are not actually following the broad Dollar strength / weakness across global basket of currencies. TAs they prefer the DXY, their opinion is always "influenced" heavily by strong weighting towards sick currencies like the Euro and the Pound. Therefore, majority of these investors conclude that the Dollar's trend is currently bullish, because it is creating a serious of Higher Highs and Higher Lows (major signal of an uptrend); and furthermore it is also above its 200 day moving average. That type of a process is quite flawed and would be very similar to concluding where the S&P 500 Index will move, if we just follow a few high weighting stocks like Exxon Mobile, Coca Cola and Microsoft.

Dollar Breadth
For the sake of exposing how flawed the US Dollar Index really is and how weak the current Dollar strength truly is, I have used the DXY with the same time frame as in the first chart, but I have now applied a variety of simple moving averages to it, from the short term 5 day MA all the way to long term 200 day MA. See the chart below:
First of all, the US Dollar Index (DXY) which is 70% weighted towards the Euro and the Pound, is currently trading above its 20 day MA, 100 day MA as well as 200 day MA - and its close to breaking above its 50 day MA. That should imply Dollar strength from medium to long term perspective right? I disagree. Checking this strength against the Euro and the Pound as the majority of the index, is not a sufficient test of Dollar's strength. We need more evidence that the strength is universal, before we can conclude the Dollar has bottomed properly.

Therefore, what I have done is applied the same moving averages from 5 day MA to 200 day MA across 24 major global currencies from all continents. That means we are now following Dollar's strength against Developed Market currencies, Emerging Market currencies, Asian currencies, Commodity based currencies and major BRIC currencies. Let us compared the chart above to the US Dollar Index with all the moving averages in the table below and make some conclusions:
  • Short term, the Dollar is above its 5 day MA against 100% of major global currencies. That confirms the current Dollar rally, as risk asset correct. Therefore, we should expect this to last, until the 5 day MA is broken by at least 33% to 50% of the global currencies.
  • Short to medium term, the Dollar is above its 20 day MA against 66% or two thirds of major global currencies. That shows Dollar is rallying against majority of global currencies over the short term, but does not completely confirm broad strength, which should be at 75% or more. If this number starts to fall below 50%, Dollar rally could be over.
  • Medium term, the Dollar is above its 50 day MA against 13% of major global currencies. The major point of difference here is that while DXY is on the verge of breaking its 50 day MA other currencies are not even close. Close to 50% or half of global currencies, including British Pound, Norwegian Krone, Russian Ruble, Mexican Peso, South African Rand and Polish Zloty are all still quite far away from their respective 50 day MAs. If the DXY breaks 50 day MA, but majority of global currencies do not confirm this, be wary of going long the Dollar.
  • Medium to long term, the Dollar is above its 100 day MA against 13% of major global currencies. The major point of difference here is that while DXY is very far above its 100 day MA, hardly any other major currency is, apart from the Euro. As already noted, Euro's heavy weighting of DXY gives it "fake strength" so to speak and mask true Dollar weakness across the board. This point of difference is very major and exposes the biggest flaw with the DXY.
  • Long term, the Dollar is above its 200 day MA against 66% of major global currencies. That shows Dollar is rallying against majority of global currencies, but does not completely confirm broad strength, which should be at 75% or more. Dollar bulls keep saying that DXY is still way above its 200 MA, but Euro weakness is once again the major reason for this flawed outlook. Many global currencies have recently started to crack their respective 200 day MA including British Pound, Swedish Krona, Canadian Dollar, Norwegian Krone, Singapore Dollar, Korean Won, Russian Ruble, Mexican Peso and quite a few others. If this number starts to fall below 50%, Dollar rally could be over.
Summary
It should be quite evident that, from the broad breadth analysis above, that the Greenback is much much weaker than the US Dollar Index (DXY) implies. Due to a heavy weighting towards other sick currencies like the Euro and the Pound, the DXY strength above 100 day and 200 MAs is actually masking the internal weakness the Dollar against majority of global currencies. Keep in mind that the Dollar never has a sustained rally, unless it rallies universally and broadly. On top of that, three precious metals like Gold, Silver and Platinum, which also tend to be counted as currencies, are all confirming the above analysis exposing further Dollar weakness.

Having said all that, it is a fact that the US Dollar is above its short term moving averages against majority of global currencies, which indicates that further possible gains could occur as risk assets correct. Personally, I think this strength is will fizzle out in coming days or weeks, without new 52 week highs occurring as Dollar bulls would like to have us believe. It is for this reason, and a few others not written here, why I am still keeping my Dollar short against the Swiss Franc, which I opened back in middle of January. Quite to the contrary of the consensus, which remains extremely short the Euro, and so many "gurus" and "experts" expecting new highs for the Dollar Index, I expect further Dollar downside into the end of the first half of 2012.

Saturday, March 3, 2012

Global Macro Update: Short Term Breadth Turns Down

Global Macro Update
Equites & Bonds: Bearish newsletter advisors track by Investor Intelligence Survey, slightly decreased this week again. At the same time Volatility Index track by CBOE, remained at low 17 readings. US Treasury 30 Year Long Bond yields still refuse to rise in substantial manner despite a huge improvement in economic data and an equity market rally. Finally, the spread between Merrill Lynch High Yield Bonds and equivalent maturity US Treasury Notes, continue to narrow, dropping down to 6% this week. We are still in process of an improvement when it comes to the corporate credit market.
Currencies & Commodities: GLD fund flows, tracked by a monthly 4 week rolling average, continue to show inflows, however this week we experienced a 3 billion dollar outflow during Precious Metals panic sell off. Positioning on the US Dollar, tracked by the CFTC Commitment of Traders report, showed that investors are still slightly bullish on the currency. Positioning in the Commodities market showed that investors are are becoming very bullish on the asset class, with the rise in positions mainly attributed to Energy. Positioning in the Agricultural Commodities market increased towards a more neutral position this week.

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 firmly in control of the market trend. We do have a short term divergence, where equities keep moving higher on closing basis, while the 52 Week New Highs fail to follow through. Having said that, we have no significant or major divergences that usually signal a major market top just yet.
Trading Above 200 MA: The Percentage of Stocks Trading Above 200 MA, tracked by the S&P data, also showed that bulls remain firmly in control of the market trend. We have no significant or major divergences that usually signal a major market top just yet.
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 was a major change in short term breadth, where overwhelming majority of sectors now have less than 50% of their components above the 10 day moving average. This could be a serious signal that majority of the market is now ready for a slight correction in near term.