Fund Managers' Current Asset Allocation - November

Every month, we review the latest BAML survey of global fund managers. Among the various ways of measuring investor sentiment, this is one of the better ones as the results reflect how managers are positioned in various asset classes. These managers oversee a combined $700b in assets.

There was very little change since October. Overall, fund managers remain very bullish on risk. In September, exposure to global equities was the second highest since the survey began in 2001; it is only marginally lower now. What is particularly remarkable is how long managers have been highly overweight equities (virtually all of 2013). This is longer than any period between 2003-07.

Time to Tank Up With Oil?

Oil has a seasonal tendency to peak in September and trough in early December. The period for positive seasonality (green shading) is now close at hand (data from Stock Trader's Almanac).

Sentiment follows the same pattern. It's now at a low where crude oil prices have tended to move higher (data from Sentimentrader).

Weekly Market Summary

The Short story:

The trend is up (chart).

Placing the Current Bull Market In Perspective

The current cyclical bull market is now second largest and third longest of the last 80 years. The current gain is twice the average for a cyclical bull market, and its length is almost 2 1/2 times the average.

The bull market of the 1990s (first on the list) is clearly in a completely different league; this is a theme throughout this post (data from Ned Davis).

As the data above shows, the rate of gain in the current bull market is among the highest ever. Since the end of 2012, the slope of ascent has become even steeper. This is similar to mid-2006 to mid-2007 (arrows).

Weekly Market Summary

There's a short story and a long story.

The short story:

Trend: All the US indices made new uptrend highs this week. A wide group of cyclicals lead domestically (chart). Ex-US indices, especially Europe, are supportive (chart).

Breadth: Breadth is confirming trend. The number of stocks trading higher on the NYSE reached a new high in October. And more of the SPX is trading above its 50-dma than at any time since May.

Seasonality: Equities are entering what is traditionally its strongest 3-month stretch of the year. And when the summer has been strong (like this year), the winter has been up an even higher percentage of the time. For further discussion, read our recent post.

Volatility: Volatility is low, a set-up for higher equity prices.

Macro: Worldwide PMI data for October was good. The Chicago PMI increased by the most in 30 years. This would seem to indicate rebound in economic growth.

In summary: Taken together, this looks like a lay-up for higher prices over the next several months. For RUT, if the pattern holds (match the colors of the arrows), support should be within the next 2% (chart).