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 Chineese housing market are weakening. The eurozone remains mired in inaction, athough 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 ALL LOWER THIS MORNING with the exception of China of course. There is always a dark horse every morning when there all the major markets we follow are lower, and normally it is China. Today, the reason for China’s strength is that her government PMI figures rose to above the 50.0, which as we always and everywhere know is expansionary…not contractionary. Now, stepping out of Asia and into Europe, we find all the major European bourses lower, and they are led by the southern periphery countries of Spain and Italy. However, we would posit that Italy’s political environment is contributing to those losses.
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