Money Managers Have Decided that Markets Don’t Go Down

Well happy GDP and FOMC day! Surprised to see a contraction in the Q4 GDP data we got this morning. We’ll see what the Fed has to say this afternoon, I wonder if Bernanke is making some quick edits to the statement after this likely unexpected drop in economic growth. Futures knee jerk reaction was down after the GDP print but as of this writing appear to be stabilizing somewhat.

Merrill Lynch has put out some great material on sentiment of money managers. One of my favorite blogs, The Short Side of Long posted the following chart and quotes from the ML’s Fund Manager Survey.

From The Short Side of Long:

ML survey Protection

On the other hand, fund managers are taking “larger-than-normal” risk, while the number “taking out market protection” fell to the lowest reading since the survey question was introduced. Once again, similar readings were wittiness in April 2010 and February 2011, and eventually markets corrected meaningfully.

Tiho also put up a chart (not shown) from ML that shows fund managers have taken their equity exposure near the highs last seen in early 2011. IF we see equities become out of favor and IF it happens quickly it appears that many investors (both professional and individual) will not be prepared for it. Professional money managers have voted that protection against a large drop in equities is unnecessary.

While I’ve had a few indicators flip negative I’ve yet to see them do so in concert with one another to the degree to become overly bearish. As I’ve written numerous times on this blog, I respect what price action dictates and while I may have an opinion of where I think things are headed I refuse to let that opinion override price. Stay smart out there.

Source: ML Fund Managers Survey – Jan 2013 (The Short Side of Long)

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.

The Battle Between EAFE and Emerging Markets

As Adam, my firm’s portfolio manager, can attest to – I like pair trades. I like the ability to find pairs that work in a mean-reversion type way that allows a short and long to work together. There appears to be one setting up between the iShares MSCI EAFE ETF ($EFA) and the iShares MSCI Emerging Market ETF ($EEM). The chart we will look at today shows the ratio between these two ETFs along with the Relative Strength Index. When the ratio is rising it tells us that $EFA is outperforming $EEM on a relative basis, with the opposite being true when the green line is falling.

I’ll often look at the momentum of a pair of ETF’s based on the Relative Strength Index (RSI) indicator. While simple overbought/oversold levels give us an interesting picture of the relationship between $EFA and $EEM, I prefer to seek out divergences.

For example, when the RSI indicator breaks above 70 and then creates a negative divergence with the ratio between the two region ETFs. This tells us that since momentum is unable to make a new high that relative performance between $EFA and $EEM may begin to turn. The same can be observed when the RSI breaks below 30 and is unable to make a lower low alongside the ratio.

EFA EEMLooking at the above chart we have the first part of the equation with RSI breaking above 70. Going forward I’ll be keeping an eye on the relationship between the EAFE and emerging markets ETFs to see if momentum starts to diverge.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.

Time Horizon is Important For Silver

I hope everyone had a good weekend. In my article for TraderPlanet this week I take a look at the setup in $silver.

Here is a piece:

Silver has created a triangle formation with the falling blue trend line and rising blue trend line as shown on the chart below. The bottom trend line is just below the 200-day moving average, which provides silver bulls with an extra layer of support so to speak. When looking at momentum, based on the relative strength index in the top panel we can see that each rally attempt is price is creating lower highs in momentum.

Head over to read the rest: A Trade in Silver All Depends on your Time Horizon (TraderPlanet)

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.