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, while both the US and Chinese housing markets are weakening. The eurozone remains mired in inaction, athough is 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 1375, and the standard 200-dma support level at 1580. 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 MOSTLY LOWER THIS MORNING after having been higher on upbeat manufacturing news out of China, and then Europe. This isn’t to mention German Chancellor Merkel’s conservative party’s landslide win in this weekend’s German elections, the best since Mr. Kohl’s reunifications landslide over 20-years ago. Although she must now form a government with her leftist rivals. Hence, the stage was set collectively for stock prices to move higher. But, that is not the case. It was the case for a short while, but sellers have entered into the markets and the only ones that remain higher are the Chinese markets. Outside of this, we find interest rates flat. The USD is flat, crude oil modestly lower, and gold simply lower.
To Read the Entire Report Please Click on the pdf File Below.