Week in Review

Emerging market equities bounced on short covering in a week where crude oil was up another 6.67 percent and food prices increased almost 3 percent.   India led the rebound, advancing 4.44 percent even though the country will be one of the hardest hit by the crude oil price spike.   It’s clear to us the market is currently pricing this oil shock as temporal and not a long-term event.

The Dollar index fell again and is now down 3.33 percent for the year.  Long-term Treasuries were down over 2 percent and now off almost 5 percent year-to-date.   Natural gas continues its descent, now down 11.60 percent for the year, confirming its reputation as a “widow maker.”  Gold made a new high then pulled back.

We think equity markets are range bound until the issues in the Middle East are resolved and the markets have confidence the unrest will not spread to Saudi Arabia.  This will be a big week in Saudi politics.   Retail gasoline prices have reached $4.00 in California and some parts of country.

A healthy test of at least the 50-day moving average is in the cards for the S&P500, in our opinion, which also coincides with last week’s low around the 1294-96 level.  If that breaks,  1275 is the next level to watch.

(click here if charts are not observable)

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