STOCKS:
The world economy is weakening: the US payroll tax increase and “sequestration” are pressuring the US economy; China is being pressured by Japan, and has “dampened” their housing market. the Eurozone remains mired in “inaction.” For now, although we feel that risk is being mispriced at current levels given recent pressure upon world economic figures and the developing pressure upon corporate margins/ earnings — the consensus is that the world’s central banks will save the day. This diverges with a bullish technical setup below.
STRATEGY: The S&P 500 remains above the 160-wma long-term support level at 1327; and the standard 200-dma support level at 1502. But perhaps more importantly, the distance above the 160-wma has grown to +23%...which now means that a “bubble-like” rally is developing, and we can see sharp gains such as 1986-1987 and 1995-2000.
WORLD MARKETS ARE HIGHER ALONG REGIONAL LINES as Asian bourses closed lower on their trading sessions, with fears still high that China’s policy of tighter money shall impact the world economy at the margin in the months ahead. Japanese stocks traded higher, but then closed lower on the very same fears, although the BOJ continues its monetary stimulus program. Quite simply, the world fears a currency war, and while this has been given quite a bit of print in the past several years, the battlefield is rather clear with Japan and China given Japan’s weakening of the yen. China is keeping its short-term rates higher to lower its currency vis-à-vis the USD, which will allow it to compete in the export market with Japan’s lower yen. Over the centuries, there has always been some-type of conflict between China and Japan, and this is just another chapter along those lines.
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