STOCKS:
The fundamental backdrop is volatile: the Italian election is not yet resolved in terms of a sitting government; US “sequestration” is in place; and China continues to “dampen” their housing market. These issues, coupled with the “troika” bail-in decision regarding Cyrprus have increased the risk-premiums on stocks. Too, lest we not forget that the various Fed regional bank surveys have surprised to the downside in March, which has begun to pressure corporate margins/ earnings.
STRATEGY: The S&P 500 remains above the 160-wma long-term support level at 1300; and the standard 200-dma support level at 1452. Now, with prices having difficulty into major long-term overhead resistance, we’ve begun to see a quiet exit out of stocks beneath the surface. Hence, the risk-reward is towards lower prices, which is confirmed by a number of our short-term models.
THERE IS RED ACROSS THE BOARD TO END THE WEEK as there are concerns abounding in Asia and Europe regarding stimulus programs out of the Bank of Japan and the ECB’s proposed “outright monetary transactions” or OMT. In the case of Japan, the BOJ members are divided over whether the central bank will meet its inflation target in 2-years, which is leading many to question whether this was an unrealistic goal in the first place…regardless of the massive monetary stimulus they have provided. We have noted that at some point, progress needs to be shown or the markets shall become disillusioned with this program, for it is not easy at all. Perhaps this is the beginning of the process of disillusionment.
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