Hello traders everywhere! Adam Hewison here, co-founder of MarketClub with your mid-day market update for Tuesday, the 26th of February.
In addition to the markets we normally report on, we will also be looking at the following markets using our Trade Triangle technology.
YESTERDAY'S #1 MAJOR CONCERN ... SEQUESTRATION
Yesterday's market action should be a wake-up call to all of us. It was a case of what happened in Italy dictating what happens to the markets here in the United States. The sharp drop was enough to scare the heck out of most investors. Yesterday's market action, coupled with the fast approaching sequester, will be enough to keep a lid on this market in the short term. All three of the major indices we track in this report are indicating that intermediate term traders should be on the sidelines at the moment. Today's market action is likely to be, in technical terms, an "inside trading day." The market will be confined inside the parameters of yesterday's large trading range. Expect a somewhat quieter and trend-less market today.
YESTERDAY'S #2 MAJOR CONCERN ... ITALIAN POLITICS
Italy is like Iran with a nuclear bomb, but the nuclear bomb that Italy has is huge debt. This mountainous pile of debt, which has been racked up over the years living "La Dolce Vita," may never be paid back. Italy is ranked third in the world after the US and Japan as the most indebted nation. If Italy does not embrace fiscal austerity, and that's a long shot, then you are going to see this nuclear financial bomb blow up and overshadow everything else that's going on in the world. All the problems in Italy and Europe that existed before didn't just go away, they just got delayed, as politicians kicked the can down the road. I believe that Silvio Berlosconi is going to do his level best to get back into power once more. Unfortunately for Italy, Berlosconi's grab for power is all about retaining power at all costs. The cost to Italy and the world this time may be more than the world can afford. Watch the ETF (EWI) to track what is going on in Italy.
CHAIRMAN BERNANKE TESTIFIES ON THE HILL
Federal Reserve Chairman, Ben Bernanke, is testifying in front of the Senate Banking Committee today. One of the questions I would like to ask is, "Can the market kick its addictive drug habit?" The market is addicted to quantitative easing and if and when it comes to an end, watch out if the economy is still on shaky ground. Remember this, the housing bubble which virtually crashed the world was not identified early on by either the FED or Chairman Bernanke. So I don't see any evidence why I should put a lot of confidence in the QE tools he is using to prop up the economy. Sooner or later, you have to accept what the markets say and take the medicine. America, up until now, has been avoiding austerity cuts like the plague. Yesterday's market action reflects how potentially fragile and volatile US markets can become based on overseas events. The bigger global picture could over-shadow everything that chairman Bernanke and the FED can do. When and if that happens, investors' confidence will swoon along with the markets.
Have a great trading day,