January 7, 2014

Equities

Recent AAII survey  readings came in at 43% bulls and 29% bears. Over the last month, bullish readings have been quite elevated with the AAII bull ratio (4 week moving average) once again reaching bullish extremes. This is the third time extremes have been reached during the last 12 months.

Chart 6: Bond funds are  experiencing  a 7th consecutive monthly outflow

Chart 9:  Agricultural  exposure is at one of the lowest levels in years.

Dow Jones UBS Agricultural Index, which makes up a major proportion of the CRB Index, remains in a downtrend since it peaked in July 2012 (during the US drought). The index is dominated by Grains, however Soft commodities have been butchered for three annual years now. Hedge funds and other speculators have been shaken out of their long positions, with exposure falling to multi year lows across the board. Hedge funds have been heavily shorting agri-commodities like Corn, Wheat and Coffee for quite some time now. Sugar positioning is near the lower range of historic exposure, while investors are decently bullish on Cotton and Soybeans. Contrarians should note that the COT positioning and sentiment surveys on Wheat are near all time historic bearish levels.

Currencies

Chart 10: Speculator are holding net long positions on the US Dollar

Recent commitment of traders  reports (also known as dumb money) showed a decently elevated net long exposure towards the US Dollar. Cumulative positioning by hedge funds and other speculators has remained quite steady for the last several weeks at around $18 billion. Speculators are split on various foreign currencies, with the Eurozone currencies being favoured and Asian / Commodity currencies being disliked. In other words hedge funds hold bullish bets on the Euro, the Pound and the Franc; while they hold bearish bets on the Yen, the Aussie and the Loonie.

Currency sentiment survey  readings on the US Dollar remains round neutral levels. However, the reasoning behind this was already explained above, with one side of the foreign currency market sold and the other bought. A great example of this is the recent data from SentimenTrader’s Public Opinion surveys — with the Pound approaching bullish extremes, while the Canadian Dollar or the Japanese Yen sits at bearish extremes.

Chart 11: Hedge funds remain bearish on the overall PMs  sector

Recent commitment of traders  reports (also known as dumb money) showed hedge funds and other speculators continue to hold one of the lowest levels of net long exposure in years. Aggregate positioning in both Gold and Silver currently stands just above 67,300 net long contracts. Comparing this to the recent price peak in August, positioning stood at almost 102,000 net long contracts; while the price peak in October 2012 saw exposure as high as 281,000 net longs. In other words, bullish exposure has been cut by almost 75% in a year and half.

Chart 12: Silver’s sentiment is now at one of the lowest levels in d ecades

Precious metals sentiment survey readings show just how awful the opinion of the investment community is towards the overall sector. The chart above shows how SentimenTrader’s Public Opinion has now reached only 20% bulls on Silver for only the third time since the 2001 bottom.The current downtrend has persisted since October 2012, so contrarians should pay attention to the possibly of Silver breaking out of its downtrend in coming weeks.