World Markets Are Tenuously Higher

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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 China 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 1363; and the standard 200-dma support level at 1562. 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 — perhaps -15% or more.



WORLD MARKETS ARE TENUOUSLY HIGHER as a combination of Syrian tensions, G-20 questions, and ECB policy decisions continue cause the market to be introspective. For now, there is a pall in the news flow with the Obama Administration still attempting to gain the necessary support for limited strikes in Syria. There are growing concerns that he very well may not have the votes in the House, and perhaps there is a bit of horse trading going on regarding a vote for action, and a preferred nominee for the Federal Reserve to take Dr. Bernanke’s place. Also, there are vocal concerns out of the G-20, and from China and Russia in particular, as to the Fed moving to reduce their simulative bond-buying campaign too soon. This could roil the financial markets and Main Street. One only need look to the weakening Indonesian and Indian stock markets and currencies as “ground zero” for those concerns. Lastly, the ECB decided to leave their interest rates and policy on hold for now. This was widely expected, and we shouldn’t anticipate too much from Mr. Draghi at his press conference.

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