MLR - Premarket Pulse April 9, 2013
General averages rose on lower volume after selling off early in the day. The market pushed higher right into the close as the effects of quantitative easing are often seen during the last half hour of trade when the markets get a sudden boost. With no volume behind the rally and leading stocks simply recovering from last week's sell-offs, the Market Direction Model remains on a neutral signal.
Japan’s currency on Monday dropped to the lowest level in four years as the country’s central bank began its massive stimulus program. Central banks are firing on all cylinders. If stock markets dont react with the same strength they did during QE1 and QE2, it's a sign that money printing is not having the same effect as before. That said, at some point, currencies will devalue further causing the prices of hard assets including stocks, real estate, and commodities to rise. This will not be a sign of improving economies, but rather a sign of forceful, drastic measures being taken by world governments to jump start growth. The hangover from this "QEgregious" party is not going to be pretty.
Alcoa (AA) reported earnings after the close and revealed that it is facing challenges as aluminum prices are down given that a glut of the commodity has persisted despite Alcoa’s moves to cut production. The company has moved to fatten its portfolio of products like screws, bolts, and other high-value parts for planes and cars in order to bolster its profit margins. Commodities as shown by the CRB Index have been in a gentle downtrend since mid-2011, which comes as no surprise given the global economic slowdown and recession in UK, Europe, and most likely the US.
The bottom line for us currently is that the market is essentially trendless, and so we believe it is best to keep one's powder as dry as possible as we await a more definitive trend to emerge from the QEgregious prop, slop, and chop that seems to characterize the action of the indexes and leading stocks presently.
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