STOCKS: The world economy is muddling through. Sequestration and continued Congressional argument regarding government closures and “debt ceilings” are clear headwinds to the US economy; while China is showing signs of trying to cool inflation. The Eurozone remains mired in inaction, athough showing nascent signs of growth. Quite clearly, we feel risk is being mispriced at current levels given the economic backdrop and developing pressure upon corporate revenues/margins/earnings. But, the QE pillars continue to hold prices higher than in non-QE times.
STRATEGY: The S&P 500 remains above the 160-wma long-term support level at 1397; and the standard 200-dma support level at 1621. But perhaps more importantly, the distance above the 160-wma has regained the +23%/+25% zone that denotes a “bubble-like rally” threshold. If it expands towards 30%, then an upside explosion may be under way.
WORLD MARKETS ARE HIGHER THIS MORNING with the exception of China’s SSE Composite. Across Asia and Europe, the gains range from +0.1% to +0.9%, with France’s CAC-40 leading the parade, while the UK’s FTSE pulls up the rear. The “risk-on, risk-off” markets of Europe’s southern periphery are higher by +0.5%. We should note at this point that all the major markets opened higher, and traded in a sideways range thereafter. There has been very little in terms of intraday variability, which at this point we cannot explain. Perhaps this is related to the fact that the Democrats took the Virginia governorship yesterday, and this has been extrapolated into the coming 2016 presidential election given that Virginia is considered a very important state. Certainly the S&P 500 futures rose rather sharply between 10:30pm and 11:30pm ET last night; and we can think of no other reason why they would have done so.
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