STOCKS: The world economy is muddling through. The US payroll tax increase and sequestration are headwinds to the US economy, China is being pressured by Japan, and both the US and Chinese housing market are weakening. The eurozone remains mired in inaction, athough showing 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. At some point, the market will view the central banks will be non-sequitur.
STRATEGY: The S&P 500 remains above the 160-wma long-term support level at 1385; and the standard 200-dma support level at 1601. But perhaps more importantly, the distance above the 160-wma “falied” at the +23- to +25% zone that is our “bubble-like rally” threshold. Hence, a correction of some proportion is forthcoming.
CAPITAL MARKET COMMENTARY
TODAY IS A “NEW DAY” AROUND THE WORLD as the US Congress followed our script to the letter for all intents and purposes, and the markets knee-jerked and liked that it finally got done. This opens the government through January 15th – i.e. meaning there will be economic report releases once again, and the debt ceiling is raised until February 7th, 2014. So, as a matter of fact, the proverbial can has been kicked down the road as none of the contentious issues brought up during this battle round were settled. We’re going to go through this whole thing once again after Christmas, so prepare yourselves. If there is one trend we are clear about that is emanating from this dysfunction, it is that the US dollar is headed lower – perhaps “much lower” as the world’s faith in the US process is slowly, but surely chipped away with this process.
With that said, we’ve included a chart of the US Dollar Index on page 2 in the lead chart position. Quite clearly, major trendline support as well as the longer-term 450-day moving average has been violated. These breakdowns bode ill technically for the USD, and therefore we can expect a sustained period of a weaker USD. If there is any upside to this decline, then we would tacitly point to the fact that gold is moving higher, which if it can bottom, then certainly long gold stocks may very well be an interesting choice. Also, we’ve seen various energy and material stocks start to move higher, and they too could garner some further long attention.
ON THE US ECONOMIC FRONT: This morning we see the weekly jobless claims figures,
To Read the Entire Report Please Click on the pdf File Below.