Week in Review: The Power of Zero v. Macro Swans

After a week where several major equity indices bounced off key moving averages only to close weak on fears of the  Euro/sovereign debt McSwan,  next week will be a another big test  for the markets.  Last week’s lows are very important for U.S. equity indices.  The S&P 500 closed 1.12 percent above its  1318.15 low on Tuesday as is now sitting 0.60 percent above the key 50-day moving average of 1325.40.   The Russell 2000 did close Friday below its 50-day for the first time since March 18th.    The ugly action in Apple at the close on Friday shows the bears are in control of this market, in our opinion.

The Hang Seng, our indicator species for global risk, bounced and closed the week above its 200-day moving average.   The Shanghai composite is also flirting with the 200-day moving average and should be kept at the center of the trading radar.    The Brazilian BOVESPA continued to make new lows for the year and is approaching last summer’s key support level of 60,865.

Gold closed the week bid on Euro debt fears.  Copper was able to bounce a bit and wheat had a big week.

We expect continued chop with a bearish bias as the deflationary Macro Swans are lining up against the equity markets and the “risk trade” (o, how we hate that term!).  Given what we perceive as a lack of participation of long-term money, the chop of traders flipping back and forth to each other based on macro news should dominate short-term price action.   The power of zero interest rates and no current viable investment alternative is keeping the panic of the global slowdown, the coming fiscal and monetary contraction, the increasingly negative news out of Europe, and the ugly action in emerging equities from resulting in a full blown market rout.

Remember, if you’re going to panic, make sure you do it before everyone else!  Good luck next week.    (click here if charts are not observable)

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