STOCKS: The world economy is has begun to heal if we look at the PMI figures across the world. However, there remain clear headwinds to the continuation of this healing like potentially higher interest rates. 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 and unlimited Fed communication regarding low interest rates continue to hold prices higher than would be seen in non-QE times.
STRATEGY: The S&P 500 remains above the 160-wma long-term support level at 1423; and the standard 200-dma support level at 1671. But perhaps more importantly, the distance above the 160-wma has regained the+28% level that denotes a potential “bubble-like rally” threshold. If it expands above +30%, then an upside explosion is under way.
WORLD MARKETS ARE MIXED AS WE HEAD INTO YEAR-END TRADING: The only bourses higher this morning is Japan’s NIKKEI close a bit of Italian strength in the FTSE MIB index. We should note all the European bourses opened higher, but most are trading lower by -0.3% as volumes are low, and getting lower as the day progresses given tomorrow is New Year’s Eve. Therefore, year-end book squaring has run its course, and prices are likely to close tomorrow where they are today. There are no major economic reports of consequence, and there is no yearend tax selling – that will take place in early January as those taxes for gains this year won’t be due until April 2015.