STOCKS:
The European debt contagion remains in place and is growing once again, China remains on a growth deceleration curve and there are concerns are of a hard landing — while the US is showing surprisingly positive data figures. Still, the risk of Europe on creating a global recession is high, although the US is better positioned than the rest of the world, which simply means that it shall outperform yet again this year.
STRATEGY: Technically speaking, the S&P 500 remains above longterm support at the 160-week moving average at 1130; which is critical given it delineates bull/bear markets. However, prices have reached into our 1350-to-1370 zone — a bit lower than expected, but the reversal lower in the NDX yesterday puts in the top in our opinion. Therefore, a correction of -5% to -8% is to be expected...for now.
WORLD MARKETS ARE ON BALANCE HIGHER although the gains are rather tepid to be sure as most European bourses are off their overnight highs. This is on the heels of news out of the EU that the Eurozone is expected to contract during 2012 – with GDP estimates for Greece, Ireland, Spain and Italy all lowered rather sharply. At some point, this will relate to higher CDS prices and higher bond yields as concerns arise about whether the austerity programs are simply digging the PIIGS a deeper hole. But for the moment, the markets are focusing on a stronger-thanexpected German IFO business sentiment survey.
TRADING STRATEGY: There is very little difference in our market outlook at this point. The market’s resilience continues to show “cracks” – and we do believe that the highs seen in both Apple (AAPL) and the NASDAQ 100 (NDX) last Wednesday suggest that the rally is over for technology for the time being, and soon to be over for other market sectors. One could easily point to the rise in crude oil prices approaching $107/barrel and the concurrent rise to higher highs in wholesale gasoline futures prices as being a headwind that is perhaps the “black swan” lurking out there in the sea of liquidity that no one is focusing upon given the Eurozone has held everyone’s preoccupation. Our downside targets for the corrections in the S&P are 1260, while the NASDAQ 100 is 2400.
We are long Energy and Gold Shares; and we are short of Technology. Going forward, we are predisposed to adding to our short Technology position by adding another 10% exposure
to QID…and looking to add further gold shares positions on corrections. Too, in the days ahead – we may look to pare back our energy exposure again in the short-term. Outside of this, we’ll trade what is working and energy and precious metal stocks are working, and they are have bullish configurations.
We are long Energy and Gold Shares; and we are short of Technology Yesterday, we pared back our energy exposure by selling Devon Energy (DVN). For now, we’ll stand aside, but will note that we won’t be surprised by a corrective consolidation to digest the gains seen; and we may very well move again to simply moderate our energy exposure even further given the market stands at such extended short-term levels. Furthermore, we are predisposed to add to our short Technology position by adding another 10% exposure to QID…and looking to add further gold shares positions on corrections.
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