Markets moved to higher-highs Friday on lower volume, continuing the "baby-step" rally. Vice Fed Chair Janet Yellen echoed Bernanke's position of easy money via quantitative easing and this morning Fed heads are confirming that Friday's jobs number was not strong enough to alter current policy which dictates an $85 billion per month injection of liquidity for the foreseeable future. As the economy strengthens, the Fed's words will become less relaxed as they theoretically will start to slowly taper off on QE, allowing markets to adjust. The idea that they would just cut QE off in one go is unlikely since they are looking for a soft landing, but this does not guarantee that markets will necessarily react "softly" as well, and price/volume action remains our primary cue without assuming that the market's action will take one particular course over another. This week will be one of the quietest of the year in terms of major macro-news events, so any big movements will not likely be influenced by the news of the day.
The House and Senate budget committees this week will continue to negotiate potential budget resolutions. Tens of billions of dollars in automatic spending cuts began to take hold after both sides failed to reach agreement before March 1. Unless a short-term funding bill is passed by March 27, the government could face a partial shutdown. This sounds like the same old song and dance as before. The market will probably telegraph little concern over the matter, and may in fact like this business of automatic spending cuts coming into play given that the government appears entirely unable to enact spending cuts on their own.
Meanwhile, bonds on the long end got pummeled last week, and in our view longer-term bonds will not be the place to be in 2013. In this regard it may be time to hit the Fed's bid, because right now that is the only bid in town.
Currently there is very little that we see as actionable as last week's follow-through day on the NASDAQ has not been accompanied by a large number of leading stocks flashing valid buy points. Members should stay tuned for any alerts should we see anything that becomes actionable.