Cliff diving anyone?
As expected, the stock market pulled back slightly after setting new highs after the announcement of QE3. At the end of the week, the Dow Industrials, S&P 500 and NASDAQ Composite were all off marginally, while the Russell 2000 was down 1%. Eight of twelve major foreign indexes were mired in the red, with the Shanghai Composite sliding the most with a loss of more than 4.5%. The overall global equity picture has become very defensive, Europe is having mood swings like a manic-depressive, in China, a symphony of bad news is bringing to daylight areas of significant weakness and vulnerability, and here in the U.S., our Congress, ran out the backdoor like their collective hair was on fire. Wait, weren’t they just on summer vacation? And now they are gone again, not to return until after the election? Returning to their districts and constituents these Mongrels, will proudly exclaim that they have done a good job this year legislatively and that they should be rewarded for such heroic actions by being re-elected to Congress. If I had my way….
The US Treasury 10 year notes close under 1.8%. The 30 year closed to yield at less than 3% and the 5 year closed under 70 basis points. The flight to safety has been reasonably successful for those who kept the durations short. The opportunities to buy more at better yields remain on the horizon. There was extensive profit taking with commodities last week, WTI crude oil fell on aggressive selling, closing just above $93 and Corn pulled back under $7.50.
I remain optimistic, but highly cautious going into this week. Monetary expansion is the charge of the global day. Many integral economic indicators continue to give me that lower back tingle; you know that feeling when something isn’t as solid as it should be. A little bearish maneuvering wouldn’t hurt the positioning this week as the quarter comes to an end. First time unemployment claims look to again exceeded forecast and very weak outlooks from FedEx confirms again a slowdown in the global economy. Last Friday’s across the board reversal action in stocks significantly caught my attention. While purely a technical signal; that rose up enough of a flag that now requires further analysis. I remain optimistic but cautiously defensive.