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, and both the US and Chinese housing markets are weakening. The eurozone remains mired in inaction, athough it 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 ONCE AGAIN ON THE DEFENSIVE TO END THE WEEK as the overriding concern at the present time is not Syria, it is not Iran, it is the US government and whether or not it will partially or fully shut down in the weeks ahead. We’ve seen this movie before, the Republicans want to hold the Democrats hostage to Obamacare funding, for they do not believe in the policy. Also, they are ready to continue cutting the US budge to the bone in order to achieve a balanced budget. This is the simplistic overview, but there are many, many undertones that are best left for cocktail parties and on the porch beers.
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