Midday report. The markets have mostly sea-sawed down somewhat in moderately low volume matched by a narrow range. The 500 is at 1406, the DOW is at 13160, SPY is at 140.53 (and inside the upper Bollinger band), SSO is at 58.21, GLD is at 160.51 and SLV is at 31.23. The USD moved from its low this morning of 79.53 to a high of 80.06 and currently at 79.91 evidently in a reaction to Bernanke’s remarks this morning. Copper is going to be a factor soon as China is slowing rapidity.
“Federal Reserve Chairman Ben Bernanke says stress tests showed the United States' largest banks could withstand shocks from Europe, even if the debt crisis there significantly worsened. Bernanke told the House Oversight and Government Reform Committee that the U.S. banking system remains exposed to Europe.
Still, he said the tests found that those banks could withstand a severe recession triggered by the debt crisis. Treasury Secretary Timothy Geithner told the committee that the Obama administration will not ask Congress for more money to help debt-laden European countries. Geithner says Europe and the International Monetary Fund have sufficient resources to deal with the crisis.”
Meanwhile, investors do not seem to be particularly worried about China, Greece or Spain for that matter. Everyone, it seems, is happily treading the shark infested waters of the stock markets. Many pundits are touting claims of the DOW reaching 20,000 and others making assertions of much better things to come. Let's face it the brokers and politicians alike have to speak positively and keep you IN the market or clients and voters will race for the door should they accidentally leak out unspeakable news about a possible correction.
Now that the financial crisis is over, out of sight, out of mind syndrome, we can turn the 'risk on' to high and move along with our 'normal' business. Well folks it is anything but normal out there and I urge the highest possible self-protection available right now. Sell in May maybe sooner than expected with selling in March coming to a broker near you. Just wait until you see copper head for the basement.
Time To Be Fearful When Everyone Is Greedy by Jacob Steinberg
“Currently most indexes are at or near their all-time highs, retail investors are back to market, bondholders are selling their bonds to buy more stocks, NBC and Bloomberg tv talk about how rosy things look, many "experts" talk about how Dow 20,000 is possible, analysts are raising their ratings to "strongly buy" or "buy" for 95% of the stocks they cover, bank stocks are rallying even faster than the rest of the market, and all the economic problems are already forgotten and have become noise in the background. These are usually signs of the nearing end of the bull market. All these happened back in 1999 and 2007. “
While we are talking about World Issues, 'the China problem' may be a lot larger and sinister than anyone is forecasting. Cam sort of touches on it here, but over the next week or so I bet we hear more distressing news that will will have a deleterious effect on the markets.
The property bubble in China bother me a lot and if it continues to deflate at the current pace you absolutely must pay attention to the risk it proposes.
Can The Bears Take Control From China? by Cam Hui
I have made the point that depending on the American consumer to fuel this equity rally is a risky bet. If this rally is have any real legs, then we need to see a broader based rally around the world. Right now, the weak link is the Chinese outlook. As a pre-condition, commodity prices ideally should start to recover more and begin to take a leadership position in the next few months in order for this bull to get a second wind.
Here are what I am watching for:
First, commodity sensitive currencies like the Aussie Dollar .
Similarly, the Canadian Dollar.
Finally, I am watching the Hang Seng Index.
I have spoken in recent past of large institutional investors starting to deleverage from long positions into something with less exposure to corrections or more likely a downturn. The key question in the article below on “how long will the rally last”, maybe it should have been titled “Has it already started”?
SPY: What Can Slow Down This Rally? by John Mylant
“The key question is: How long will it last?Large institutional investors have been pulling out of U.S. stock exchange traded funds, according to the latest weekly data.
When money flows out of something, of a stock, the value begins to decrease at some point.
So what could possibly slow this rally down from a long- term move up? It is possible to consolidate and rest for a bit- even moving down before it continues up. What is our first challenge to stop this rally?
The first major obstacle we will have to challenge our bullish run will be earnings for 2Q of 2012. Investors will be looking closely at company earnings.
Written by Gary