STOCKS:
The European debt contagion has been “kicked down the road” as Spanish and Italian short-and-long term bond yields have moderated recently given the ECB “plan” to buy bonds of up to 3-years in maturity...but only if asked; and only if conditionality is imposed upon those asking. The Fed has also changed its game from “inflation-fighting” to “unemployment fighting” with the new move to QE-4; and with any war — they will go further and farther than anyone believes in printing money to achieve their ends...regardless of their balance sheet concerns.
STRATEGY: The S&P 500 remains above the 160-wma long-term support level at 1261. The much followed 200-dma support level stands at 1391, and was regained in weekly key bullish reversal fashion. Collectively, this stands bullish for a test and likely breakout above the recent September highs at 1475. We are long of gold and transports at this juncture; but need to consider pullbacks for a potential rally extension.
ASIAN STOCKS ARE HIGHER; EUROPEAN STOCKS ARE MIXED: The fact of the matter is that Europe and early US futures trade are awaiting the over-emphasized US Employment Situation Report. We’ll get more into this below; but trading has come to a bit of a halt prior to it. Outside of this, there is volatility across a number of other futures markets.
Let us note that precious metal prices have tumbled very sharply overnight, with gold trading down -$38/oz to $1636. Too, we see US note/bond yields rising rather sharply as well, with the entire yield curve rising. Crude oil prices are lower as well. The US dollar is rising rather sharply as well – especially against the Japanese yen.
The reason for this weakness stems from yesterday’s FOMC Minutes from the December 19-20 meeting in which the Committee decided to end Operation Twist, and then put in place QE-4 in which $45 billion a month in notes and bonds would be purchased until unemployment drops to 6.5%. The minutes indicated that more Committee members believed that QE-4 should end in 2013, and sooner rather than later.
This seems to be a bit of “shootin’ themselves in the proverbial foot” in that these now public concerns have undermined the bond market for the time being. 10-year yields have risen towards 2.0%; and we know that this isn’t what the Committee members intended.
To Read the Entire Report Please Click on the pdf File Below.