STOCKS:
The fundamental backdrop is likely to be volatile: Italian elections results will be tabulated tonight; US “sequestration” starts on Friday; and we see Fed Chairman Bernanke in front of Congress this week. These will dominate the headlines in the short-term, but longer-term — the Eurozone recession, the likely decline in corporate profitability and the Fed’s tapering of QE-4 will serve as headwinds.
STRATEGY: The S&P 500 remains above the 160-wma long-term support level at 1278; and the standard 200-dma support level at 1407. Collectively, with the breakout above the Sept-2012 highs at 1475 has run into major overhead resistance, and has round “rough sledding” over the past 2-days. There ar a ‘plethora’ of bearish weekly key reversals in the making; hence today’s trade will be important.
WORLD MARKETS ARE ALL HIGHER THIS MORNING and they are so given what many consider to be “uncertain news” developing on the near-term horizon. Overnight, we’ve seen the HSBC China manufacturing PMI drop from 52.3 to 50.4 – which was not expected. Remember, that one should only care if the 50-level is violated, for it delineates the contraction/expansion line. Now, China manufacturing is dangerously close to contraction. Also, the Italian elections will enter their second day today, with investors believing that a pro-Italy government will indeed be elected – the Italian market is higher by +2.3% and the 10-year note yield is at 5.37%...down -10 bps. Lastly, the markets seems to be taking to the wire once again the US sequester that is to begin this Friday, with very little in the way of progress it would seem at this point.
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