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 Chinaese 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 1385; and the standard 200-dma support level at 1601. 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.
WORLD MARKETS ARE HIGHER ON DAY TWO AFTER THE US AGREEMENT to kick the can down the road and have a meeting about it before it all starts once again. The gains aren’t material, but they are ubiquitous in showing gains of +0.3% across the board with the exception of Japan’s NIKKEI, which is a bit lower on a stronger yen. The major overnight news is that China’s economy grew at a +7.8% clip in the third quarter from a year earlier. However, this good news is tempered by the recent surprise decline in exports for September, and the slowing of factory as well as soft retail sales. In other words, this is about as good as it gets for the time being.
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