Market Outlook – 28th March 2012

28 Mar

Okay, its fair to say the market looks rather contrived and there are many indicators to the good and bad, so where now?

Last week saw an overall loss following Friday’s rebound but the mid-week losses were too severe. This pullback may not mean the rally is over, since the markets didn’t drop below any key support levels.  All the dip did was give back some of the gains from the previous week.

So what next? A correction is overdue but that doesn’t mean the market, at least in the short-term, may see further gains. Although the pricing and decline in fear in the market could mean that any significant negative news could be the catalyst for this market correction.


Economic Data

The big news last week mostly came from the property sector and principally about real estate – and the news was good.  This, shows the potential of improvement, rather than any realistic comment on the sustainability of this sector or comment about the buoyancy of the market and definitely not to suggest figures from 2007 are plausible or expected (the top of the market).

Unemployment data continues to improve but there is a long way to go on this before we see a benefit that has significant economic implications. This coupled with worsening figures in areas of the Eurozone and an increase in the number of countries falling back into recession could have serious implications – and this could be bad news.

The continuing tensions in the Middle East are again concerning and until the issue over nuclear development is cleared up, it is not possible to evaluate the situation.

Growth, inflation, hard/soft landings in economic data in emerging markets is unclear and this may lead to better than expected data – I think it’s fair to say we need good news in these areas. Their success is paramount for the global economic recovery – conversely, if this does not happen it would have a dire impact.

On Wednesday we will see released the durable orders number for February – expected to be up 1.0% excluding autos, and up 2.5% including autos. This is followed on Friday with the personal income and personal spending updates – expected to be up 0.4% and 0.6% on last month, respectively.

Consumer confidence measures will also be releasing their results :- 

  • The Conference Board’s consumer confidence reading for March is expected to drop slightly, from 70.8 to 70.0
  • The Michigan Sentiment Index is expected to see a drop for March to 74.3

Both could see further rises before reaching what I would call excessive levels. Although sentiment is a strange beast and so we could see the opposite happen very quickly with significant declines. I am a strong believer that when pressures are significant in a single direction and marginal in the opposite, I take the prudent strategy.


The Markets

Currently, the pullback from last week doesn’t disrupt the overall up-trend the market’s been in since the beginning of the year. Some would argue, we must remain bullish (optimistic) based on the present momentum.  Yet, we also have to acknowledge this rally has now reached historical limits. 

A point to consider – the current rally has already exceeded most time and distance norms. That’s not to say it can’t keep going. It is to say, however, we’re getting into unusual territory where it would be wise to be skeptical. Although, the problem with any bearish (pessimistic) theory is we haven’t seen any real clues or catalysts to drive the market to fear and panic. So far, we’ve seen a couple of blips but the blips have only materialized after exceedingly bullish weeks, so is it just a bit of a pullback as expected. The problem with panic, it happens and is unexpected.

So where next? My view is be prudent and consider the risk return ratio and do not rely on a single strategy. Look to asset correlation and diversify to protect the risk of losses combined with access to potential profit centres.

Any questions contact me –

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