TRAN Accumulation-Distribution
Stocks in general show very important distribution throughout this cyclical bull that began at the 2008-2009 lows. One of the very few exceptions is the last 5 months on the Dow Utilities, but that looks eerily similar to the first bout of early accumulation back in 2008, and it's ultimately also a sign of defensiveness.
UTIL Accumulation-Distribution
My smart big money model isn’t giving us much to be too positive about when talking about smart big money flow as it relates to US equities. When looking at the ETF’s for foreign stock markets (granted this is not the best of "windows" into foreign markets, but since this is volume based analysis, it's the closest approximation I have - and where I do have access to direct readings, the basic tendency of the ETF's is confirmed), the picture is not any different at all, with the exception of Italy and Spain who have seen equally strong accumulation on declines, as distribution on rallies, since early 2011, and Hong Kong, which for some reason unbeknownst to me, saw some very positive accumulation from August 2011 to July 2012. Curiously enough, and moving back to the negative, Japan, in spite of seeing some nice accumulation in the summer of 2012 (and a small bout in November), looks, in my opinion, quite frankly, ugly longer term since its 2009 low.
With respect to bonds, and using the vehicles available to me, the model is not suggestive of positive smart big money flow there either (TLT is showing accumulation on the shorter, 1 hour time frame however, much like we see on the 1 hour SPX chart posted last week).
HYG Accumulation-Distribution
Strangely enough, the model is not suggestive of positive smart big money flow into metals either.
It certainly hasn't been going into gold. Silver looks much the same as gold, but without the accumulation in the 2008-2009 pullback. It's pretty much ditto for palladium, except for some recent bouts of accumulation since May of 2012, but it's once again currently showing clear distribution. Platinum shows balanced accumulation and distribution since mid-2010, confirming its sideways trading range since that time. Finally, copper, like palladium, has seen some nice bouts of accumulation since the end of May 2012.
Like the metals, oil, as seen in WTIC, is showing very important distribution since right off the 2009 lows, and GASO has also seen heavy distribution on every rally since that time excepting its 2009 to 2010 consolidation period when it saw nice accumulation. NATGAS, on the other hand, has been under accumulation since August of 2008 (excepting its occasional rallies, where it’s seen distribution). HOIL is a mixed picture, but, basically, on balance distribution has been its longer term tonic.
Okay, up to this point in this post, the overall picture is one of important distribution in stocks, bonds, metals, and energy. In the case of the grains and the softs on the other hand, corn, for example, has a very positive looking chart showing distribution and accumulation within a rising trend.
Since their 2008 spike highs, the accumulation-distribution readings on wheat and soybeans look similar to corn, with soybeans also exceeding its 2008 spike high, but with wheat struggling at the 50% retrace. Sugar and coffee look similar, with healthy and consistent accumulation on their declines from their 2011 spike highs, and with sugar presenting a possible bullish exhaustion wedge that either holds or breaks down.
To return to, and round out the wide-ranging "negatives", the USD, as seen in UUP, is showing what I consider to be a very healthy accumulation-distribution basing pattern.
Big, smart money flow has been moving out of equities, bonds, metals, and oil in general, with the grains and softs, and utilities, oversold PIIGS and Hong Kong to a lesser extent, getting my "benefit of the doubt" rating. What’s worrisome though is the fact that "the books don’t balance" so-to-speak: the huge outflows clearly overwhelm whatever inflows we see in the instruments that are given the benefit of the doubt. Is all that big, smart money simply going into cash in what has become a highly correlated Risk On, Risk Off world?
Or is it leaving paper instruments all together? This indeed would be Bernanke's worst nightmare. Consider the following.
Of the few "paper" instruments that best fit into this category, BG is the best looking I've found when analyzing smart big money accumulation-distribution.
(Don't be misled into thinking that accumulation is automatic just because price has been depressed. Consider the follow chart made up of all those "eventual zeros" as Karl Denninger is found of saying.)
Even if the big smart money is moving out of paper and into hard (and generally illiquid) assets like farmland, that option also has its longer term downside when keeping in mind its 1.4:1 ERoEI (or worse, and getting worse) so caveat emptor to the long term investor.
Of course, you could buy traditional methods farmland where the ERoEI can approach 20:1, but you'd have to work of course. ;-)
Anyhow, back to the immediate task at hand: where's the money going? To the Hamptons? To productive unlisted, private and illiquid farmland? Out of paper financial instruments all together? There is reason to think so, both technically and fundamentally - even if you think that option is also likely to ultimately end up in the money destruction shedder longer term. Is some being allocated into cash to wait on the sidelines for the signals to jump back in for a relatively short term speculative play into an everything stocks and commodities basic-needs-related last spike higher?
Given how big smart money works, we'd need an important pullback in the majority of the instruments studied in this post for that to happen though (perhaps the same for the few instruments that do show decent intermediate and longer term accumulation), that is if we're talking about a major spike higher, otherwise smart big money would probably have to content itself with simply further unwinding into a lesser spike higher as rebalancing points are reached much sooner (and perhaps even accelerate liquidations by moving portfolio percentages to "underweight" as prices move higher). Another possibility is that the grains and softs that have already seen decent accumulation start to lead the way in the very near future while the remainder "correct" somewhat first, but that's tough to imagine alongside a strengthening Dollar though (IF it is to strengthen short term). With the majority of Risk On being overbought on extremely high sentiment readings, I think the data presented here (along with other TA data I've been presenting as of late) suggests that the short term scenario for a spike higher in the USD, as stocks and energy correct, and the commodity complex puts in a capitulation intermediate term bottom, is the most likely of scenarios. There is also another principal possible outcome of course, namely, the big, sell everything that's not nailed down scenario, but I don't give that more than a 10% probability at the present time.
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Here are my current probability assignments based on everything I’m looking at:
My highest probability IT scenario: down first, then up big to a final high.
My second highest probability IT scenario: up to a final high.
My third highest probability IT scenario: down, then range bound 1300-1500 basis SPX.
My lowest probability IT scenario: down, down, down.
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