Thursday, June 27, 2013

Market Outlook: All Clear? Not So Fast

Last time i wrote about market outlook, I felt gloomy. A pity I didn't act on my feelings. A lot has changed in three weeks.
Fundamentals. Still suck. Inflation is inching lower, and if anybody thinks that 1.7% (official number) or 1.5% (market anticipation based on difference between 10-year treasuries and 10-year TIPS) is good, well, they probably don't need a job. Of course, mumbling Fed didn't help things, it helped somebody to orchestrate huge bear raid on all fixed income. I didn't believe that those somebodies wanted to break the Fed. But two comments persuaded me in the opposite: Rick Santelli said last week, as an off-cuff comment, that bear raid on Treasuries looks stupid, unless Fed is broken, like Bank of England in 1992. Another comment by Richard Fisher (head of Dallas Federal Reserve) was: "You can't break the Fed". Which just tells me that somebody wanted exactly that. I don't know if such bear raid is illegal (it would be on a stock market), but the size of it is scary. And, of course, I'd like to know the conductor.
In other fundamental news: 2013 1Q GDP revised down, a lot, to under 2%. That's huge. Market took it as a good news, counting on Fed not to end QE any time soon. Well, I have no doubt in QE forever, or at least for the next 10 years, which is the same in investment outlook.
Technicals. Not good. The only good technical signal comes from VIX index: it railed to make a new high on Monday, when indices made a new low. But so far S&P failed to get over 50-day moving average. And yesterday 13-day MA crossed below 50-day. In the last 5 years, every time such cross happened, bear market (or correction, whatever you call it) continued until 13-day MA started rising. During this rally, which started in January, S&P ran over 50-day MA all the time, every attempt to cross it was a buying opportunity. Now 50-day MA is a resistance instead of support. History tells us that we have at least couple of weeks more of jitters before (if) bull market starts over again.
Sentiment. Good. I mean gloomy. But being a contrarian indicator, it's good.
If my feelings are right, we have several stormy weeks ahead. Watch Treasuries and 50-day MA on S&P.

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