Thursday, May 23, 2013

It's early, but FYI, equity futures down approx. 1% ...

It appears that the market needs either better economic data or further confirmation or assurance that it will remain centrally managed and controlled by Bernanke and the Fed.  Mr. Bernanke's testimony on Wednesday was not as effective as many had expected.  We find it interesting that while the Fed is trying to be as transparent as possible regarding how it is managing this supposed free market and economy, it is also trying not to be too transparent to make sure everyone still believes that this is a free market and economy!  All of this has gotten the market more and more addicted to the Fed's QE.  At times it appears that the market, lawmakers, entertainment/business TV networks, and everyone else are saying what Cypress Hill used to sing in the early 1990's: "I want to get high, so high ...". (

We note that the equity market no longer reacts as significantly to positive or negative macro news as it did the last few years, which means there are some companies that remain undervalued and/or under-followed.  However, in the meantime, as the market has kept hitting new highs, a pullback, basically of any significance, has become more likely.

S&P 500 futures are down around 1% right now.  And on the global front, the Asian markets are taking a hit mainly due to the disappointing Bernanke testimony and decline in China's preliminary manufacturing index for the month of May.  Japan's NIKKEI 225 index is down 7%.  Then again, it had skyrocketed 45%+ from the beginning of the year. 

Things don't look that great from a technical standpoint.  After spiking up nearly 6% in less than a month and hitting the all-time high of 1687.18, S&P 500 has a huge gap to fill.  Its next support level, we think, is around 1595, which is also its next Fibonacci Retracement level and where the linear regression line is currently hitting.  If it goes below that, which the Fed and lawmakers will do their best to prevent from happening, then 1540 would be the next support level.  In terms of MACD (moving average convergence/divergence), it went as high as 25.1 and ended Wednesday at 24.1.  Last time the MACD value hit that level was in late Oct. '11, after which the market experienced a near 10% pullback.    

Of course, potential losses within the US equity market could be pared or avoided if Thursday's initial jobless claims and new home sales numbers come in much better than expected.  The consensus for initial claims is 345K, while economists expect April's new home sales to have edged up slightly to 425K, from March's 417K.

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