Poised to run higher

After yesterday's strength all four of the major index's are now above their respective 20, 50, and 200 day moving averages.  This along with a positive divergence in breadth is a good sign.  With the A/D line breaking out to new highs on the S&P the index's are set up to follow through with strength.   Breadth in the form of sector participation is also healthy as all 10 of the major S&P sectors are now above their 20 day moving average.  Even ex-US index's are pulling their weight as the majority are above their 50 day moving average.  From a trend and breadth perspective the narrative has become more bullish the last few days. 

If we turn our attention to the April fund manager survey we can gain some insight into fund managers positioning and sentiment.

Below is a recap of the April FMS:

• Bulls silenced, not routed: risk assets can bounce, but SPX 2550-2850 range holds 
• Cash jumps from 4.6% to 5.0% (Exhibit 1), equity hedging levels @ 18-month highs…
• …18-month lows in FMS global growth & profit expectations, equity allocations…
• …and record # investors say companies excessively levered
• But true FMS bull capitulation absent…just 13% say recession likely, only 18% say stock bull market has peaked…
• …and asset allocators still married to TINA (there is no alternative - equities>bonds) until UST10Y hits 3.5%
• #1 “tail risk” = trade war (China, Germany markets most vulnerable)
• Top “crowded trades”: #1 long FAANG+BAT, #2 short US$, #3 long credit
• April rotation out of stocks, tech, banks, Japan; tech allocation lowest since Feb’13 on Occupy Silicon Valley & trade fears
• April rotation into cash, commodities (8-year high), energy, UK (biggest post-Brexit)
• FMS contrarian trades: long government bonds; long US dollar, short EM equities; long liquid defensives (e.g., pharma, staples), short cyclicals (banks, consumer discretionary)

FMS cash jumped 0.4% to 5% continuing the FMS cash rule contrarian "buy" signal.  Allocations to global equities fell to 18-month low of 29% from net 41% overweight in March.  Allocation to commodities rose 4% to 6% overweight, the highest since April 2012 when WTI was $105/bbl.  Meanwhile investors that are hedging their portfolios is at an 18-month high. 

Is the worst behind us and is the market poised to run higher?  The weight of the evidence confirms the trend has turned higher with a positive confirmation in breath.  There is certainly plenty to worry about with trade wars, Syria, and the Fed.  However, with earnings season about to get into full swing coupled with tepid sentiment, the foundation is set for a test of new highs.