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There is an easy way to find out where the market thinks a particular sector is heading: Check out the movement of futures contracts held by top hedge fund managers.
These days the signal is clear and pointing in one direction. It's in energy.
Reports have recently surfaced that hedge funds are moving into commodities in general, and energy commodities in particular. What's more these moves are more bullish than at any time since midsummer.
The reason is the same one that we have been discussing for several months. Demand is coming back more quickly than anticipated.
Energy spikes usually start that way. Indicators of market resurgence seem to rush onto the scene, catch analysts by surprise, and the acceleration begins.
But this time, those who survey the market should have seen it coming. After all, the indicators and benchmarks have been there. I have been laying them out here in Money Morning for weeks.
Two elements have emerged over the past several days that finally require the pundits to catch up with us.
First, it is becoming impossible to ignore what is happening in the U.S. and China. Both markets are moving up, with that direction intensifying of late.
In the U.S., forward economic indicators are developing into a bull market signal. This has augmented the run we have experienced of late, largely due to the combination of an oversold condition, no bad news (Congress and the White House may at last be learning how to play nice in the sandbox), and money moving back in.
But it's the second factor that everybody will be talking about this week.
U.S. and China Growth Higher than Expected
Investment flows back into equities are quickening. Indications are that over $2.2 trillion came back into stocks thus far in January, the best one-month showing in years. With a pause in European concerns – business confidence moving back up, the European Central Bank establishing standards for cross-border banking, and the credit crisis appearing to ebb – the improving American picture is a genuine stimulus to share prices.
That combined with what is happening half way around the world in China is a recipe for optimism.
About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.