STOCKS: The world economy is healing. However, there remains clear headwinds to the continuation of this healing, such as the emerging market risk-reassessment. Quite clearly, risk is being mispriced at current levels given the economic backdrop and clear pressure upon corporate revenues/ margins/earnings — not to mention the contined QE taper glide path.
STRATEGY: The S&P 500 remains above the 160-wma long-term support level at 1447; but perhaps more importantly, the distance above the 160-wma stands at+21% — down from a high of +28%. If it expands above +30%, then an upside explosion is under way; but under it — then a larger correction is expected to materialize.
WORLD MARKETS ARE WEAKER THIS MORNING as Japan’s NIKKEI loss of -1.8% has led Asian bourses to close lower – although we can’t pinpoint any news or data point that pushed them lower, while European bourses are trading lower in sympathy. Italy stands out as the largest European loser – down -1.5% - as there are calls for Prime Minister Letta to go, with a showdown between him and his centre-left party today that could lead to his resignation and the appointment of Democratic Party leader Renzi within a few days. Moreover, we find it all the more interesting in light of Comcast’s $45.2 billion all-stock deal for Time-Warner Cable; this takeover should be positive for the broader market…but thus far it has not proven to be so. The S&P futures are lower by -11 points; the US dollar is sharply lower, with both gold and crude oil lower. In effect, today is a “risk-off, snow-on” day, which will see trading volumes “very low” given the Nor’easter crossing into New York this morning – and the fact Washington government options are all closed today.
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