STOCKS:
The fundamental backdrop is likely to be volatile: The Italian election is coming back into view; US “sequestration” is in place; and Tuesday’s beginning of China’s annual National People’s Congress. These issues will dominate the headlines in the short-term, but longer-term — the Eurozone recession, the likely decline in corporate profitability and the Fed’s tapering of QE-4 will serve as headwinds.
STRATEGY: The S&P 500 remains above the 160-wma long-term support level at 1281; and the standard 200-dma support level at 1412. Collectively, with the breakout above the Sept-2012 highs at 1475 has run into major overhead resistance, and has found “rough sledding” over the past several days. This, coupled with our models rolling over suggest this is a topping process, but it is still too early to definitively confirm.
GREEN IS THE PRIMARY COLOR This morning, Asian and European bourses are all higher to begin the New York trading day. In Asia, China rebounded rather strongly from the previous day’s decline, with most of the gain concentrated in the final 75 minutes of trading but was unable to recapture the previous day’s decline. In Europe, the gains are rather impressive, and they are so given there is very little in the way of news to have generated such gains. Those economic reports released were the Markit Services PMI figures, which were all below the 50- level contraction level with the exception of Germany. Hence, Europe remains mired in both a manufacturing and services recession. There is a rather glowing disconnect between reaching for yield and the economic fundamentals moving forward.
ON THE US ECONOMIC FRONT: Today, there is only one report of major consequence at 10am ET – the ISM Services Index. The consensus tells us to expect a reading of 55 versus January’s 55.2 reading. At 2pm ET, Richmond Fed President Lacker speaks on “Help or Harm: Central Bank Monetary Policies at the Outer Limits.” This will be rather interesting to be sure given the markets remain convinced that QE will remain in place “in full” through year-end. We are rather skeptical of this, and believe that they shall begin tapering towards September.
To Read the Entire Report Please Click on the pdf File Below.