U.S. futures are up sharply this morning as economic news out of China side-steps a feared worst-case scenario, Eurocrats voice support for more bailouts, and Fed Chief Ben Bernanke defense of QE3 at an International Monetary Fund speech in Japan yesterday. The action does not strike us as too surprising given the fact that the S&P 500 was resting at its 50-day moving average by the Friday close while the NASDAQ is holding right above "handle" support in the 3040 price area. Thus a bounce from logical support is not to be unexpected.
The real story remains in market leadershp that has been faltering as of late, and any bounce can only be viewed within the context of a normal reaction rally after the market sold off all last week. With the "QE babble" hitting the headlines over the weekend and this morning, it is surprising to see precious metals backing down pre-open with gold dropping below $1750 an ounce while silver drops over 1% to the low $33 an ounce level. Both metals are pulling back in what so far appear to be consolidations of their prior sharp moves off the August lows. Overall, it is interesting to note that after the Fed announced QE3 on "Fed Thursday," September 13th, the market had one more up day to higher-highs and has since failed to move higher. One might expect that such a huge dose of "QEternity" would spark a significant rally in equities and precious metals, but so far this has not occurred. Instead, the NASDAQ has corrected 4% off of its recent peaks while the S&P 500 has corrected 3%, this morning's futures jack notwithstanding.
Economic news has remained mixed. On Friday, the consumer-sentiment index rose in early October, well ahead of Wall Street's expectations with the best number in five years, as reported by the University of Michigan-Thomson Reuters consumer-sentiment gauge. Consumer-sentiment index rose to 83.1 in a preliminary October reading from a final September reading of 78.3. Economists polled expected the index to decline to 78 in early October. Meanwhile, he producer price index (PPI) showed more inflation than expected but the core figure, which excludes food and energy prices, came in under expectations. This morning retail sales came in better than expected across the board which appears to be boosting stock futures further while the precious metals move lower.
We continue to believe that investors should remain cautious, sticking to selling guides on positions in stocks as well as precious metals if not outright seeking to lock in whatever profits one has in long positions as one moves to cash and waits for the next set of buy signals to appear. In our view this is not an environment where one can force the issue, hence patience is likely a virtue, and certainly a virtue of selfish investing.
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