STOCKS: The world economy is has begun to heal if we look at the PMI figures across the world. However, there remain clear headwinds to the continuation of this healing, like potentially higher interest rates. Quite clearly, we feel risk is being mispriced at current levels given the economic backdrop and developing pressure upon corporate revenues/margins/ earnings. But, the QE pillars continue to hold prices higher than would be seen in non-QE times.
STRATEGY: The S&P 500 remains above the 160-wma long-term support level at 1415; and the standard 200-dma support level at 1652. But perhaps more importantly, the distance above the 160-wma has regained the+27% level that denotes a “bubble-like rally” threshold. If it expands towards 30%, then an upside explosion may be under way.
WORLD MARKETS ARE SCHIZOPHRENIC THIS MORNING as Asian bourses were quite weak on the weak PMI data out of China, while European PMI data was on the stronger side. The former circumstance pushed both Japan’s NIKKEI and China’s SSE Composite sharply lower, with the NIKKEI losing -1.6%, while the SSE lost -1.4%. However, since the initial release of China’s PMI data and through the European PMI data, the S&P futures have rallied +25 points, and it has done so in VERY THIN trading in front of Wednesday’s FOMC meeting. This thin trading environment is likely to be in force until a clear decision is made by the FOMC; and we do expect some clarity along those lines whether this intend to taper or not, they shall provide additional information for doing so in our opinion.
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