STOCKS: The world economy is muddling through. The sequestration and continued Congressional argument regarding government closures and debt ceilings are clear headwinds to the US economy, while China is showing signs of trying to cool inflation. The Eurozone remains mired in inaction, athough showing nascent 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. But, the QE pillars continue to hold prices higher than in non-QE times.
STRATEGY: The S&P 500 remains above the 160-wma long-term support level at 1404; and the standard 200-dma support level at 1636. But perhaps more importantly, the distance above the 160-wma has regained the+25% level that denotes a “bubble-like rally” threshold. If it expands towards 30%, then an upside explosion may be under way.
WORLD MARKETS ARE MOSTLY HIGHER: Asian and European bourses continued their ascent (Asian very strong, Europe more moderate) on the prospect of extended monetary stimulus in the US. This was clearly due to testimony from Janet Yellen, the nominee for chairman of the Federal Reserve, who continues to propagate the view that the central bank would tie policy changes to underlying improvement in the US economy. We shouldn’t have expected anything different from her testimony, and there were no real contentious Republicans to speak of. This is smooth sailing for her to be confirmed as the next Fed Chairman.
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