The Investible Hedge Fund index monitored by Bank of America Merrill-Lynch has switched to the positive side and is up 0.13 percent MTD as of November 28. The reading outperforms the -0.16 percent on the S&P 500 (INDEXSP:.INX) over the same period. The index is up almost 2 percent for the year. With respect to strategies, Commodity Trading Advisors continues to underperform, with 0.35 percent MTD and -3.27 YTD. The best performing strategies in the last month were Merger Arbitrage with 0.51 percent and Convertible Arbitrage 0.44 percent.

BAML’s analysis senses a positive sentiment in the investing community, where NYSE Margin debt rose 0.8 percent in the month of October and has increased 12 percent year-on-year to $317.5 billion from $315 billion in September.  The y-o-y trend stayed on the negative end until July of this year and boosted in the last three months. Margin debt leverage can be an indicator of investor confidence, as investors will stack up on debt when they are expecting tailwinds for the equity market. Readings predict further increases in this trend.

Equity Long/Short hedge funds sold market exposure to 27 percent from 29 percent net long, whereas Market/ Neutral sold to 2 percent from 3 percent net long. Macro funds continued to sell S&P 500 (INDEXSP:.INX), NASDAQ-100 (INDEXNASDAQ:NDX), commodities, and 10-yr treasuries, and covered their shorts in the USD and emerging markets.

Across asset classes, large spec hedge funds bought S&P 500 (INDEXSP:.INX), NASDAQ 100, corn, gold, silver, palladium, platinum, heating oil, gasoline,  USD, and 10-yr treasury notes; while selling soybean, 30 yr and 2 yr treasuries. Shorts were added or maintained in copper, natural gas, yen, and euro. Activity was flat in Russell 2000 and wheat. The readings for corn, 30 yr, and 10 yr treasuries are in the crowded long.

In our previous update, large spec hedge funds were adding shorts in NASDAQ-100 (INDEXNASDAQ:NDX), however in the last week of November, about 80 percent of NASDAQ-100 (INDEXNASDAQ:NDX) futures were covered.

Despite the high valuation of euro 1.3o compared to USD, the long term trend for the currency is down. In the case of yen, if the present trend continues, yen will reach the crowded short zone soon.