MorningWord 3/25/13: Last Monday, at this exact time I sat down to pen this piece and I suggested that the down 1% opening on the flare up was a “Treacherous Set Up For Bears, $SPX = Flight To Quality“. Here we are a week later with the S&P futures above the close prior to last weekend’s Cyprus flare-up.
My contention at the time was that U.S. risk assets would once again be perceived as less risky from those in Europe and the ones under-performing in emerging markets, and therefore were likely to continue to display relative strength.
With the SPX cash regaining all of the ground that it lost early last week, it now looks poised to break out to new all time closing high above 1565 (less than 1% away from the Oct 2007 Euphoric levels) and possibly test the intra-day highs of ~1575. On Thursday I suggested the same in this space, “Why Come To The Prom If You Don’t Intend To Kiss The Queen?”. This doesn’t make me bullish, it just suggests that I am not immune to noticing the obvious. This week also is an interesting set up, with a holiday shortened week due to Good Friday and many out for Passover, the powers that be who want to mark their portfolios into quarter end may be able to do so with little resistance.
I will add one caveat – if and when we make that momentous close, the chart below shows the relationship of the SPX to its 200 day moving average over the last 2 years. What is obvious again to me, is that when the SPX is making new highs and gets btwn 8% and a bit over 10% from its 200 day moving average, it had always had a pull back in the coming months of at least that amount.[caption id="attachment_24027" align="aligncenter" width="589"] SPX 2 year chart from Bloomberg[/caption]
I’m just saying. I guess it sounds a bit old at this point, but if you are gonna try to steal that kiss from the Prom Queen you may want to slip out the back door of the gym before her boyfriend comes looking for you!
I do not believe we can have a sustainable second leg of the ytd rally until we have a meaningful pullback in the range of 5-10%, so I remain stedfast in my belief that this is not a good entry point for committing new capital to equities despite U.S. equities generally favorable attractiveness to other regions.
I will add one more thing, our markets appear to be a little sick of the whole Cyprus thingy, and as of now (9:15am), the S&P futures are up only 16 bps, and the Euro Stoxx Bank Index (SX7E) which was up 2% is down on the day, how much of the Bail-Out are in stocks at current levels.[caption id="attachment_24030" align="aligncenter" width="589"] Euro Stoxx Bank Index (SX7E) one day chart from Bloomberg[/caption]