North American markets have posted an impressive 5 day end-of quarter relief rally on the heels of the 'official' end of QEII, intense international economic negativity, and a rapidly deteriorating consumer confidence index.
This 5 day (4%) rally is the best since last July and should keep markets fractionally positive on the year.
Equity markets have swung from significantly over sold to now slightly over bot in the short term. At this point on a weekly basis the latest quarterly sell off looks 'technically' like a normal 'garden variety' 10% retrenchment from a significantly over bot 2 year bull market run. It has felt much worse. My Mark Twain analysis suggests that, 'the reports of the major equity markets death may have been greatly exaggerated.'
Relieved global equity markets cheered the passage of a 5 year austerity package as a first step to solve the 'Big Fat Greek' debt problem. Good news and celebration for everyone except the tax paying citizens of Greece. As part of the 'deal' massive multi trillion dollar cuts to health, military, and the social system are expected and hopefully delivered. A major test for state run socialism to say the least!
Brand spankin' new IMF chief, 55 year old Chicago trained lawyer & single mother of two, & former member of the French national synchronized swimming team, Christine Lagarde, will have her manicured hands full orchestrating economic peace, love, and happiness within the membership of the EU. Her economic 'synchro' skills will be immediately tested and hopefully she won't be in 'over her head' while in the 'deep end' of the pool! Good thing she has been well trained in holding her breath! She might need it!
Despite the numerous challenging 'continental issues' the US dollar remains 8% lower than the Euro so far this year. The Euro has held up very well against the intense and occasionally violent monetary and banking onslaught. The effect and the amount of bad news appears to be waning and priced into many key market valuations.
In the US the housing price indices are 'finally' showing signs of 'flattening' (and improving in certain areas) which is good news for both the mortgage markets and builders. The DJIA and S&P bounced off critical support and back through my stop levels of 12,000 and 1,300 respectively. The US markets have been led by a very impressive rally in the critical transportation sector. News of major financial institutions finally dealing with their 'toxic' housing mortgage issues appears to be a major catalyst for an rapidly improving US banking index. My only major concern is a 'rapidly' deteriorating US treasury bond and rising interest rate environment despite the deep pools of liquidity and credit.
Household debt has become much more manageable and good news continues to be announced from a very strong manufacturing sector. The historically low interest rate environment has played a critical role in the deleveraging process and improving household financial ratios.
Investor appetite remains upbeat in the social media space with a pending $US2b IPO for SF game creator Zynga putting market cap valuations as high as a whopping $US23b - in excess of Activision and Electronic Arts combined! Lots of bling bling for the Zyng Zyng! Recent issue LinkedIn remains solidly above issue price (100+%) and appears to have absorbed short term selling pressure. This very impressive market action reminds me of the tech market of 1995 as opposed to 1999.
Serial golfer, President BHO, unveiled his Marxist class warfare theme to an unimpressed corporate jet flying Congress in the hopes of winning critical debt ceiling votes and support. Evidently the US #1 CEO cannot find a single nickel of spending cuts within the $US3b+ a day deficit the US spends more than it takes in? The August 2nd deadline looks almost certain to be in jeopardy. Fed Chairman Ben B will have to have his 'A' game on for his next speech to the huddled masses. He will need to sound like he knows what is happening - even if he's not sure! But as Bill Freeza of Political Capital states, 'Asking unaccountable bureaucrats to steer a national economy without ever having contributed to it is like asking the Pope to train sex therapists.'
In the commodity sector, the $US90/bl level for crude oil was briefly tested as a result of the 'strategic' release of 60m bbls from the IEA 1600m bbl stockpile onto an already over served market. The current three month 20% sell off tested the $US88-90/bbl and would turn bullish above the $US100/bbl level. It appears all the IEA accomplished was to clean out short term trading accounts and 'evil' speculators. The spread between Brent and Dubai crude contracted 50% in just four days. Natural gas holds the key $US4.25/mcf level and appears to be building a very positive long term weekly accumulation base formation. The world's top 5 natural gas producing countries are: #1 Russia (47t cu m), #2 Iran (30t cu m), #3 Qatar (26t cu m), #4 Turkmenistan (7t cu m), and Saudi Arabia (7t cu m). The US is 6th ranked with over 6.9t cu meters of natural gas. The majority of the top ten producing countries are not exactly a who's who list of friendly and reliable suppliers. Gold persistently hovers above $US1,500/oz but could quite easily retest the mid $US1,400 level based on improving sovereign monetary issues. Silver holds the mid $US30 level and would take a a move above $US36 to turn positive and a possible expected move back to the mid $US40 level. The new edition 2011 American Eagle silver coins are being released at a 75% premium/oz at $US59.59 each. Looks like the US Mint is long term bullish too! Copper has been the star this week moving above $4.25/lb and it's 200 dma. Accelerating South American political and environment issues are significantly contributing to supply and delivery concerns. The agra/grain sector is continuing to consolidate recent pullbacks from recent high territory and rising inventory levels. Over exposed fund accounts have contributed to recent short term volatility.
In Canada, housing prices have relentlessly moved into new record high territory fanning inflationary flames. Current average Canadian housing valuations and consumer installement debt per person is making the reckless 2006-07 US levels look like a walk in the park! April stats indicated a lower & muted economic growth environment and an overall weaker 2nd quarter of activity. The TSX/LME merger was suddenly & unceremoniously halted when it appeared obvious it was unable to garner the two thirds necessary for victory. The Maple Group now licks it's salivating chops in advance of adding a central piece to it's formidable vertical financial silo. The TMX Group appears to be fully valued at current levels with other suitors or higher bids unlikely. The TSX is almost 400 points from it's falling 200 dma and is almost exactly at my 13,250 stop level. Financial issues remain mixed and are a critical factor in any sustainable market rally. The possibility of an increasing bank rate would be a considerable headwind in a low growth environment.
In closing, the month of June is going out a lot better than it came in. Key levels have been tested and held. Interesting twists and turns occur just prior to and after long week end breaks. A hyper negative and very over sold environment has bounced back into a more neutral and constructive mode. Huge wads of negative economic contagion concerns have been impressively digested by the equity markets. The lessening effect and reduced amount of negative issues may inspire the numerous 'under invested' funds, who are likely braced for worse case scenarios, to reenter equity markets sooner than expected. I can find very little evidence of froth or irrational exuberance in this fairly to under-valued equity environment. Very little positive news is expected +/or factored into the next few months. I am treating the recent 2 to 3 month sell off as a normal correction in a longer term liquidity led bull market. I reinstate my key stop levels of DJIA 12,000, S&P 1,300, & TSX 13,500. Stocks look to outperform bonds with dividend and interest rate spreads narrowing and normalizing significantly. A post QEII environment may be more productive and predictable than previously thought!
No comments:
Post a Comment