Sentiment Summary: Bullish On U.S. Equities, Bearish Bonds, Commodities
Tiho Brkan | Jul 16, 2013 03:13AM ET
- Quite a lot of price movements in the last week or two, with US equities moving towards new highs, Crude Oil break out of its two year consolidation and precious metals rebounding from their three year lows. Lets get into this weeks sentiment update:
- AAII survey readings came in at 49% bulls and 18% bears. Bullish readings rose by 7% while bearish readings fell by 5.5%. The AAII bull ratio currently stands at 73%, which indicates extreme optimism amongst the retail investment community. I believe we are currently in a top building formation and this is now the second time AAII survey has signal readings 1.5 SD+ above the mean (chart above). For referencing, AAII bull ratio survey chart can been seen by clicking here (updated appropriately from time to time).
Chart 4: Funds continue to dramatically cut their commodity exposure
- Last weeks commitment of traders report showed that hedge funds and other speculators reduced commodity net long bets dramatically for the third week running. Cumulative net long exposure currently stand at 132,000 contracts tracked by my custom COT aggregate, which is the lowest positioning level since at least 2001. Exposure was reduced in agriculture, both the grain and the soft sector, as well as a reduction in the metal sector. Energy exposure slightly increased as Crude Oil bets rose close to a record high.
- West Texas Intermediate Crude Oil has broken out from its prolonged technical consolidation pattern. After moving sideways for a better part of more than two years, the price has finally made a decisive breakout in the last two weeks. However, this is occurring on the back of extremely high speculative net long positions, which usually signal a top... not a bottom. It is also worth noting that this indicator is not perfect at predicting Oils future movements and is also currently in disagreement with Heating Oil COT positioning (which I prefer to use a lot more).
- Commodity Public Opinion surveys are mixed within the commodity complex. As energy rallies, sentiment has risen towards neutral levels. On the other hand, agricultural commodities and metals still remain under pressure. Sentiment on base metals and precious metals, as well as soft commodities like Cocoa, Coffee and Sugar are all in extreme unloved territory.
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Chart 6: Hedge funds are building bullish greenback bets again
- Last weeks commitment of traders report showed growing exposure towards the US Dollar from a previous week. Cumulative positioning by hedge funds and various other speculators stands at over $28 billon, compared to $22 billion last week and $13 billion two weeks ago. From a technical perspective, it was interesting to see the USD Index break out to new 52 weeks only to sharply reverse on the downside. Keep an eye out on this one...
- Hedge funds hold short bets against all foreign currencies from Euro and Yen all the way to Aussie Dollar, where positioning remains near record high net shorts. The chart above shows how both commodity currencies (Aussie & Loonie) have peaked in middle of 2011 and actually broken down in recent weeks. While hedge funds are extremely bearish on the Aussie, they have been covering their net short bets on the Loonie. This has resulted in smaller downside (so far).
- Currency Public Opinion survey readings on the US Dollar has reached bullish extremes associated with intermediate degree tops. At the same time, Public Opinion on the foreign currencies has fallen dramatically. In particular, investors dislike the Pound, the Euro, the Yen, the Franc and the Canadian Dollar.
- Last weeks commitment of traders report showed hedge funds and other speculators continuously reducing precious metals exposure. Hedge fund positions on Gold remain at a decade low of 16,500 net longs. At this pace, within a week or two, Gold positioning will be at net short for the first time since late 2000. As a percentage of open interest, both Gold and Silver positioning remains in single digits at 4.4% and 5.2% respectively.
- Public opinion on alternative currencies like Gold and Silver still continues to remain depressed, which is confirming the ultra bearish COT reports discussed above. As stated last week, sentiment can stay negative for a prolonged period of time during bear markets the same way it can remain positive for a prolonged period of time during bull markets.
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