Profit Taking As Markets Move Lower

U.S. markets were lower yesterday as investors weigh the pros and cons of the Federal Reserve reducing QE and budget negotiations in Washington DC.

It would seem as we near the holidays, we are seeing investors ask themselves why they are bidding heavily on equities. They are considering overvaluations as well as another budget crisis looming between the Republicans and Democrats. So far for the year, the S&P has seen an incredible run and is up 26 percent. This is a pace more than likely to slow down in 2014.

Still, we are seeing money go from bonds to equities as economic improvement is support the capital changes. We are noticing that more people want equities than those who do not. What is the alternative investment here? Is there one?

STOCKS

The DJIA lost 52 points overnight. The blue chip finished the day at 15,973.13 as 23 of its 30 sectors lost ground. The S&P 500 fell nearly 6 points as the index closed at 1,802.62. Utilities led the S&P lower followed by consumer staples. The Nasdaq Composite fluctuated in a tight pattern all day going from small gains to losses. In the end the tech heavy index lost 8.26 points to close at 4,060.49.

Asian markets are still experiencing profit taking. The Nikkei was down as much as 1.2 percent as a strengthening yen dampened good economic news. The USD/JPY was at 102.80 at the time of this report. Japan released core machinery orders which was up 0.6 percent which indicates some capital investment as companies are increasing capital expenditures.

The Shanghai Composite has retreated 1.24 percent. The composite is now at a one week low as investors are jittery. They are waiting on announcements from the annual Central Economic Work Conference which began yesterday. We are expecting to hear policy for 2014 and the GDP target as well. In Australia, the ASX 200 is down 0.6 percent hitting a new two month low. We had seen an intraday low of 5,115 at one point. In South Korea, the Kospi is down modestly and avoiding heavy losses as investors there like a stronger yen.

CURRENCIES

EUR/USD (1.3757) tested 1.38 and failed as the Dollar is recouping some of its losses from the last several days. It is unlikely to break above this area but if it does, the next key level is at 1.3850. USD/JPY (102.756) could not break above 103.55 to 103.72 cluster zone once again. We seem to be range trading here for the time being.

The GBP/USD (1.6437) is trading near a resistance level. We are consolidating after several days of good gains. We remain bullish here. AUD/USD (0.9130) is trading steadily for now. We must get above 0.9170 to see any signs of strength. While below there, we can see more losses.

COMMODITIES
WTI Crude (98.47) is moving higher as we are setting up a test of 98.75. A break above that can target 100. Gold (1259.40) moved above 1250 on a weakening Dollar as well as increased demand from China. Copper (3.302) is up as well. We have resistance at 3.30, which we are now testing. If it holds, expect a dip back to 3.20 id it breaks, we can test 3.35.

TODAY’S OUTLOOK
This is a relatively quiet data day. The U.S. will release mortgage application around 7:00 EST. We are waiting on announcements out of China regarding its 2014 GDP target.