STOCKS:
The world economy is weakening: the US payroll tax increase and “sequestration” are pressuring the US economy; China is being pressured by Japan, and has “dampened” their housing market. the Eurozone remains mired in “inaction.” For now, although we feel that risk is being mispriced at current levels given recent pressure upon world economic figures and the developing pressure upon corporate margins/ earnings — the consensus is that the world’s central banks will save the day. This diverges with a bullish technical setup below.
STRATEGY: The S&P 500 remains above the 160-wma long-term support level at 1330; and the standard 200-dma support level at 1509. But perhaps more importantly, the distance above the 160-wma has has now faltered below the +23% “bubble-like rally” threshold. This is a warning sign to be sure; especially given 1600 was violated to the downside.
WORLD MARKETS ARE HIGHER TO BEGIN 3Q as this week will likely be a low-volume affair given Wednesday as US markets are open for a “half-day” on Wednesday and closed on Thursday for 4th of July holiday. Also, trading is likely to be “muted” given Friday’s June US employment situation report. So, we’ll look for quite a bit of volatility both higher and lower, and not much in the way of progress given current uncertainties. This morning, Asian bourses were higher, led by Japan as the BOJ may soon upgrade the economic view, and that Japanese manufacturer sentiment turned positive for the three-months ending June for the first time in 2-years. Thus far, the Japanese market decline has yet to hit sentiment, but the fact of the matter is that the gains and volatility have moderated in Japan.
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