STOCKS: The world economy is healing. However, there remains clear headwinds to the continuation of this healing, such as the emerging market risk-reassessment. Quite clearly, risk is being mispriced at current levels given the economic backdrop and clear pressure upon corporate revenues/margins/earnings. Not to mention the contined QE taper glide path.
STRATEGY: The S&P 500 remains above the 160-wma long-term support level at 1447. But, perhaps more importantly, the distance above the 160-wma stands at+21% — down from a high of +28%. If it expands above +30%, then an upside explosion is under way, but under it, then a larger correction is expected to materialize.
WORLD MARKETS ARE HIGHER AGAIN THIS MORNING in what can be seen as the “all or nothing” capital markets. Either they decline in a straight line for days/weeks, or they rally in a straight line for days or weeks. There is simply no in-between. That being said, the world markets are only modestly higher this morning after Fed Chair Yellen’s first “Humphrey-Hawkins” testimony yesterday before the House Financial Services Committee, stating simply that there is going to be no change in policy at this point. One gets the sense this morning that perhaps the 5-day rally is perhaps a bit overdone, and that a correction to ease the short-term overbought condition is at hand. Moreover, we find the Russell 2000 Small Cap Index (RUT) lagging the S&P and Nasdaq.
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