27th February - Why we still like the S&P
03 March 2014
TECHNICALS:
Monthly chart
The long-term chart tells the story of massive underpinning of the market.
Daily Gilt chart
The short-term price action suggests that the market is on the point of breaking out of a two month pause....
FUNDAMENTALS:
Since the beginning of February, the S&P has made a strong recovery from the emerging markets sell off that dominated January. So much so, that it is again pushing up against previous all time highs.
The reasons for the recovery are;
Add to this a fairly solid earnings season and an understanding that much of the US economy’s current softness is due to extreme winter weather that has affected much of the US and although currently shows no sign of easing up, traders are looking beyond this natural phenomenon and anticipating a return to more solid growth when spring finally arrives.
However, just when it seemed the time was right for going long the S&P, another crisis has erupted; Ukraine.
The internal turmoil afflicting Ukraine has been running for several months, and was mainly a protest about whether that Country should embrace the bear hug of Russia or look west towards the EU.
The authorities were set on closer ties with Russia, but the people wanted the greater sense of freedom believed possible from a closer relationship with the EU..
However, the game changed last week when the police began picking off protesters with sniper fire leading to a death toll of some 50-80 people. The Parliament decided enough and voted to remove the President and announced new elections and freed the ex-Prime minister from jail.
Clearly angered by his policies failure, Russian President Putin has upped the rhetoric, placed 150,000 combat troops on high alert together with fighter aircraft and promised to protect the rights of ethnic Russians.
All of this sounds like another attempt to grab back former Soviet territory, much like in Georgia several years ago.
If Russia rolls over the border, what can the west do?
From a military standpoint, nothing. No one in the west will want to go to war over Ukraine which Russia obviously regards as a wayward province. But there must be consequences for Russia if she resorts to an invasion of a neighbouring Sovereign state as a means of getting her own way.
Although much of Europe relies on Russian gas, Russia relies on the revenue from it and there must be an economic price to pay if she resorts to blatant aggression.
What impact is this having on stocks? Currently the tension has merely paused the rally, there has been no wholesale sell-off and we don’t think there will be. Possibly there may be another risk aversion driven correction.
For us this makes the S&P look very bullish and it is only the minor uncertainty caused by Ukrainian events that restrains us from going long right now, but our intent is definitely bullish.
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06th Mar - Soybeans Recovering Off Long Term 76.4% 
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02nd Mar - USD/JPY Recovery Paused at Long Term Resistance