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John Kosar
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John Kosar, CMT, is Director of Research of Asbury Research LLC (http://www.asburyresearch.com/). Since 2005 Asbury Research has been providing in-depth, comprehensive financial market research to professional investors that understand the value and importance of incorporating technical,... More
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Asbury Research LLC
My blog:
Logic-Over-Emotion Investing
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  • Oil Prices: Smart Money Skeptical At $103 Per Barrell

    One of several investor asset-flow based investor sentiment metrics that we track is the weekly Commitments of Traders (CoT) data.

    The CoT data, compiled and published by the Commodity Futures Trading Commission (CFTC), breaks down futures open interest to determine and disclose how several different types of investor are positioned in the marketplace.

    One COT data data series that has caught our attention recently is the current positioning of the Commercial Hedger and Large Speculator categories in crude oil futures.

    First, a little background information. Commercial hedgers are large traders who also deal in the commodity on a cash basis, which in this case would include oil producers. These entities typically accumulate a net position against the trend, to hedge their physical interest in the commodity. Think of them as value barometers. More specifically, this group indicates, via their positioning in the futures market, when the smart money thinks (and, more importantly, is betting) that an asset is either over- or under valued.

    Large Speculators are non-commercial large traders who have no dealings in the underlying commodity. They aretypically commodity funds who accumulate a net position with the trend.

    The chart below shows that Commercial Hedgers are currently hovering near a record net short (bearish) extreme of 445,492 crude oil contracts (red line, upper panel) while the trend following Large Speculators are coincidentally holding a near record net long (bullish) position of 423,136 contracts (blue line, middle panel).

    (click to enlarge)

    Crude Oil Futures Since 2006 & COT Data

    This indicates that the smart money, who is in the oil business, is aggressively betting that crude oil is currently over-priced at $103 per barrel. If they are correct, and they almost always are, this means that any decline that pushes oil back below $100 per barrel will probably send these very aggressively net long commodity funds heading for the exits, and that forced selling could fuel the decline that the smart money is betting on.

    The pink highlights between all 3 panels show that the previous two similar net positioning extremes by the Commercials and Large Speculators, back in April 2011 and again in February 2012, immediately preceded two 30% declines in oil prices as in each instance they dove back below $100 per barrel.

    Crude oil prices have historically been an economic barometer that can indirectly indicate, and sometimes lead, upcoming direction in other financial asset prices. This can be seen in the periodic positive correlation between oil prices and the S&P 500 during the past decade.

    Asbury Research subscribers can view our latest macro overview of the US financial landscape, including US stocks and sectors (we have been overweight the Energy Sector since March 3rd), US interest rates, the US Dollar. and economically influential commodity prices like crude oil, copper and gold, by logging into our Research Sector.

    Interested investors can request information about Asbury Research, including services and pricing, by emailing sales@asburyresearch.com or calling 1-888-960-0005.

    Jun 04 2:08 PM | Link | Comment!
  • US Market Sectors: Updating Our Asset Flow Metric

    The following is an excerpt from the US Stock Market Sectors section of our April 21st Keys To This Week report.

    The report also covers the US Stock Market, US Interest Rates, the US Dollar, and economically influential commodities like copper, gold and crude oil, providing an intermediate term macro outlook for the US financial landscape that includes tactical investment ideas.


    US Stock Market Sectors

    Table 2 below shows that the sector with the biggest inflows of investor assets over the past week, the past month, and the past 3 months has been Energy, which has fueled the Energy Sector SPDR ETF (NYSEARCA:XLE) outperforming the S&P 500 SPDR ETF (NYSEARCA:SPY) by 7% since March 5th.The table also shows that the sector with the biggest outflows of investor assets over the past week and the past month has been Health Care, which has triggered the Health Care Sector ETF's (NYSEARCA:XLV) 5% of relative underperformance versus the S&P 500 SPDR ETF (SPY) since March 4th.

    (click to enlarge)

    Table 2

    Sector Table: Table 3 below lists our current market calls for relative outperformance (green background), relative underperformance (red background),and market performance (blue background) versus the S&P 500, and includes any newly closed-out existing market calls (gray background) in the 9 sectors of the S&P 500 as represented by the Select Sector SPDR ETFs. The table includes the date that we initiated the call, relative sector performance since then, and in the rightmost column Asbury's performance relative to the direction of the call.

    (click to enlarge)

    Table 3

    This Week our trend model retains an overweight bias in Energy (March 3rd), Utilities (February 3rd), and Materials (January 21st), and an underweight bias in Financials (April 14th), Health Care (March 24th), Technology (March 10th), and Industrials (March 3rd).Chart 6 below displays the current distribution of investor assets in the 9 Sector SPDR ETFs on Thursday April 17th. The colored highlights identify the most under-invested and over-invested sectors based on their historic daily average distribution of investors assets since April 2006.

    Chart 6

    The green highlights show that the two most under-invested sectors are currently Energy, at just 13% of the sector pie versus 20% historically, and Utilities, at 7% of the sector pie versus 11% historically. The most over-invested sector is Industrials, currently at 11% of the sector pie versus 7% historically.The lower panel of Chart 7 below shows that the percentage of ETF sector bets allocated to Energy expanded to 12.8% at the end of last week, from just 9.5% on February 19th.

    Chart 7

    The green highlights in the upper panel show that the Energy Sector SPDR ETF (XLE) has outperformed the S&P 500 SPDR ETF (SPY) by 7% between March 20th and April 17th, fueled by this aggressive influx of investor assets from historically under-invested extremes.As long as the "slice of the sector pie" that Energy comprises continues to expand, the Energy Sector is likely to continue outperforming the US broad market.

    continued…

    (click to enlarge)

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    Tags: XLE, XLK, XLI, XLB, XLF, XLU, XLV, SPY
    Apr 23 1:00 PM | Link | Comment!
  • Health Care Vulnerable To Upcoming Sector Underperformance

    The following is the US Stock Market Sectors section of our Monday, March 24th Keys To This Week report. The report also includes sections that focus on the US Stock Market, US Interest Rates, and The US Dollar.

    This section utilizes our own proprietary indicators that measure sector-specific ETF asset flows to anticipate upcoming relative sector outperformance and underperformance.

    US Stock Market Sectors

    Last week, the sectors with the biggest inflows from a week earlier were Financials (23.44% of all sector-related bets versus 22.82% a week ago) and Financials (10.89% from 10.32% ), per Table 2 below. The sectors with the biggest outflows were Health Care (12.47% versus 12.81% a week ago) and Utilities (6.67% versus 6.93%).

    Table 2

    Chart 7 below shows that, through the end of last week, Health Care comprised 12% of all SPDR ETF-related sector bets compared to 9% historically since 2006. Not shown is that, on an end-of-quarter basis, 12% is the largest percentage of the sector pie that Health Care has comprised in the history of these data. The only other instance of Health Care comprising 12% of all sector bets was at the end of Q1 2013, after which it peaked versus the S&P 500 two weeks later and subsequently underperformed the US broad market index by 4% over the next month

    Chart 7

    Chart 8 below plots the daily relative performance of the Health Sector SPDR ETF (NYSEARCA:XLV) versus the SPDR S&P 500 ETF (NYSEARCA:SPY) since July 2013 in the upper panel, with the daily percentage of these sector bets allocated to Health Care plotted by the black line in the lower panel along with its 21-day (monthly) moving average. The red highlights show that this daily percentage contracted below its monthly moving average at the end of last week, indicating a negative change in the trend of asset flows, and that the previous instance of this coincided with relative sector underperformance by Health Care between November 25th and December 17th as the percentage of sector bets that it comprises contracted to 10.6% from 11.5%. This metric suggests that the upcoming relative sector underperformance that Chart 7 warns of has begun.

    Chart 8

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    Mar 24 5:32 PM | Link | Comment!
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