STOCKS:
The European debt contagion has been “kicked down the road” as Spanish and Italian short-and-long term bond yields have moderated recently given the ECB “plan” to buy bonds of up to 3-years in maturity...but only if asked; and only if conditionality is imposed upon those asking. The Fed has also changed its game from “inflation-fighting” to “unemployment fighting”; and with any war — they will go further and farther than anyone believes in printing money to achieve their ends.
STRATEGY: The S&P 500 remains above the 160-wma long-term support level at 1249. The much followed 200-dma support level stands at 1383, and was regained in bullish fashion after the previous Friday’s bullish key reversal higher. Collectively, this is bullish for a test and likely brekaout above the recent September highs at 1475. We want to be long of gold, energy and materials at this juncture, and we adjusting our positions this morning to reflect this.
WORLD MARKETS ARE HIGHER THIS MORNING with the exception of the southern European Spanish and Italian bourses, although each country’s 10-year note yields are lower on the session. Outside of this, there is very little in the way of market moving news overnight, with most indices in the box score below at the very same levels as when we came into yesterday’s trade. The only exception is the Japanese yen, which is sharply lower on the session.
There is very little on the US ECONOMIC FRONT today, with the Personal Consumption Expenditures (PCE) and Chicago PMI data on tap. The real drivers of the markets are the politic comments out of Washington DC, and they are all over the place. What we found interesting is that although yesterday there was quite a bit of acrimony being thrown around, the market took it in stride for the most part and closed higher. Overnight, the S&P futures are +6 points higher off their lows, and there continues to be a “bid” under the market.
That said, we have no intention of adding to positions at this point, and if we did – then it would be in the Transportation sector. Ultimately, we look for the S&P to trade upwards of the previous highs in the 1500’s sooner rather than later, and it shall be the character of that rally as to whether new all-time highs look to print, or whether a major correction unfolds.
We don’t know yet; what we do know is that the S&P’s 18-MMA and this month’s low at 1343 are obvious “sell points” that if broken would indicate a larger correction or even bear market is at hand. This has certainly been the case in past larger corrections bear markets, and it shall be the case when another one hits our shores.
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