Home > Uncategorized > 2012/04/09: Courtesy ‘Market Alert’ from Friday… Back in tomorrow

2012/04/09: Courtesy ‘Market Alert’ from Friday… Back in tomorrow

© 2012 ROHR International, Inc. All International rights reserved.

Short & Sweet on the specific market comments in this post, because we are out today with the UK and Europe. That said, Friday’s TrendView Market Alert was also a view on some very interesting influences coming up early this week. Might this possibly be the beginning of a more substantial significant trend reversal in equities? That’s quite a bit more problematic into the beginning of a new quarter and the June S&P 500 future only dropping to initial support at 1,375-67 so far. 

And without a new trading high of any substance last week (i.e. only marginally above the previous week’s 1,415.50), there is not even a bona fide pattern top in place. While across time the equities might still be topping out, the seasonal phase and significant support below the market indicate any major trend reversal will most likely occur on a ‘trading’ basis. There will more likely be some further filling out in a more convincing top between the mid-1,300 and low-1,400 area than any further sharp capitulation.

That said, there are a couple of wild cards out there.

Those would be the European Sovereign Debt Crisis raising its ugly head once again, and the potential for a violent resolution of the Middle East standoff with Iran. However, neither of those would seem the sort of influence that would totally crush the equities in the near term. The equities have already been through a series of Euro-zone scares, and seem to weather them well once political leaders, finance ministers and central bankers focus on stemming the crisis. Even though Spain is a bigger problem that Greece, there are steps that can be taken if push comes to shove. And that is in spite of both the Fed and ECB sounding a bit less accommodative last week.

On the Middle Eastern front the potential for a disruptive violent spasm is mitigated by one key factor. That is US President Obama’s continued aversion to forceful confrontation. He remains firmly committed to ‘engagement’ with Iran. That is code language for appeasement through continued negotiation. We hardly need to take any space here to review the number and derisive nature of the rebukes his previous entreaties have elicited from the Iranians.

And the US position is in sharp contrast to the UK and European (even French) shift to a much more forceful position on Iran’s nuclear program. Heck, even Turkey has just rebuked Iran as a specious and unreliable negotiating partner. Against all of that the US position is not only an historic reversal of US leadership; it is another Obama administration international diplomatic ‘triumph of hope over reason.’

It also seems a bit of election year politics over global realpolitik. Our sense is that after committing to withdrawal of US troops from Afghanistan on a political (rather than military) timetable this summer, the last thing Mr. Obama wants is another military entanglement. Keeping the Pacifist wing of the Democratic Party solidly inside the tent into November trumps heading off an Iranian nuclear weapons program.

And based on that, in spite of the escalating rhetoric, do not expect any aggressive confrontation in the Middle East. Any threats against Iran from elsewhere are hollow without the US Seal of Approval. Even the Israelis will be very hesitant to strike without at least a tacit greenlight from the US. Whatever the intermediate term implications may be (and they may be terrible), that is constructive for equities for now.

General Market Observations

In the first instance, Friday’s TrendView Market Alert also has links back to more specific trend analysis from Thursday (which also links back to Wednesday.) And our key point Thursday after seeing the FOMC minutes Tuesday and ECB press conference on Wednesday was might (the recently most accommodative central banks) be pulling the proverbial punch bowl at the wrong time?”

On current form it seems so. And that is especially so for Mr. Bernanke. We noted on Friday that CNBC’s Rick Santelli earned ‘Quip of the Day’ honors for his take on the weaker than expected US Employment report. He summed up the uncomfortable position in which the Fed Chairman now finds himself with, “Mr. Bernanke’s gotta be sweatin’ like a Cubs manager in September.” (For the uninitiated, that means worried about whether there is any chance to achieve success.)

How does he reinstate the ‘Bernanke Put’ after hawks just shoved a less accommodative stance down his throat? It’s going to be interesting. Yet, we also noted last week that in spite of the FOMC minutes’ implications, a ‘Bernanke Put’ does indeed remain in place if the Chairman chooses to implement it. And that is another reason that any extensive equities reversal into a sustained bearish phase will more likely be a trading affair than an immediate sharp drop.

Even last year the equity markets spent months evolving broader tops prior to the extended selloff. We expect things will not start out any more aggressively bearish this year unless one of the wild cards noted above does indeed become much more prominent.

Equities ratcheting down have only seen June S&P 500 future retest the top of the 1,375-67 support. And even if that is violated, the more prominent congestion from last summer is not until the 1,350-38 range. That said, the interim resistance in the low-1,400 area is now also more formidable than previous, based on the recent failures in that area.

EXTENDED TREND IMPLICATIONS

Yet, the response in the other asset classes is most interesting. That is most pronounced in the extreme strength of primary government bond markets that almost seemed renewed bear markets after their sharp drop four weeks ago. However, the push back above some key resistances, such as June T-note 129-20/130-00 has put them back in a more bullish mode.

And the upside leader is the Bund once again; no surprise in light of the weaker Euro-zone economy and flight from some of the peripheral sisters that appear suspect once again (like Spain.) We explored the classical tendency for the Bund to remain resilient even at the outset of any bear trend in govvies in our March 23rd post; possibly worth revisiting for anyone interested in the background to that classical tendency.

On the whole foreign exchange remains a quite a bit more subdued, churning affair. Even weak sisters like the Australian dollar are only progressing in an orderly fashion in their slide. AUD/USD back below 1.0400-1.0335 has held to top of its 1.0258-1.0184 next support for the past several sessions. Similarly the recent reversion to strength in the Japanese yen has only seen USD/JPY slip below its 82.00 support to the low 81.00 area.

The one interesting exception is the April Gold future, which was previously headed down with equities. That was ostensibly on a loss of inflation premium which had assisted the yellow metal’s bouts of strength in March. However, after getting slammed on equities weakness last Wednesday, it rebounded Thursday even as equities continued to soften. As we inquired on Friday, might this mean it could regain a ‘crisis’ haven bid because of the weakness of equities, instead of dropping once again along with them? On current form that would seem to be the case.

Thanks for your interest.

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