Weekly Results:
S&P 500 831.95 -1.40%
DJIA 8,077.56 -1.64%
NASDAQ 1,477.29 -2.29%
Russell 2000 444.36 -3.95%
MSCI Emerging Markets 22.05 -4.0%
Thought Process:
Being constantly reminded of cycle slowdowns is becoming a common pattern not only for active participants, but even for casual observers. Now most headlines, surveys and data indicate a similar message of weakness. Nonetheless, extra bad economic news is not a major surprise to an already grim environment. Importantly, the bigger concern for money managers is the uncertainty caused by on the impact of intervention and bailout packages. In periods of consolidation, one can anticipate increasing investor skepticism. Perhaps, investor psychology supersedes actual facts. For example, in the past few months some can perceive market participation as a "gambling" spectacle rather than the pursuit of fundamental growth. Conversely, some analysts will argue that entry points are attractive based on cheap valuations. These conflicting views should be resolved in the marketplace.
Now, its been noted that global markets were highly correlated in this recent downtrend. Perhaps a reflection of uniform weakness is inter-linked in global markets. At this stage, money managers plan to closely examine emergence of new leadership. In other words, more than identifying market directions, it is equally vital to indentify subtle themes impacting longer-term trends. This full week ahead should reinforce a series of inflection points. Market Observers in currency, commodity, equity and fixed income await response from Federal Reserve, economic data and ongoing earnings season.
Macro Association:
Interestingly, recent recovery is also showing high correlation among asset classes but this time on the upside. For example, since mid December lows the US 10 year yields and Crude continue their upside rally. Similarly, Gold is picking up momentum while the US dollar continues its multi-month strength. On the other hand, the S&P 500 is down 7.9% and MSCI Emerging markets is worse off at -10.3%. The message here can be interpreted as risk aversion and flight out of equities. Mainly, this showcases ongoing rotation into safer instruments offering liquidity. This partially explains the price appreciation of US Dollars and Gold.
Macro Levels:
Crude [46.47]: Two month range forming between $35-50. Positive weekly move but long-term data does not point to a trend reversal. In fact, heavy resistance at $50.
Gold [875.75] Strong recovery since October as the commodity broke above its 50 and 200 day moving average. From a technical view next resistance level stands at $880.
US 10 Year Yields [ 2.61%] : Nearing 50 day moving average. while attempting to stabilize above 2.40%. In the days ahead, the longevity of recent trend will be tested.
DXY – US Dollar [85.60%] Index is re-accelerating from an established uptrend that began in March 2008. Although, extended short-term positive momentum resurface.
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