11/11/13

To open the week the market remained calm and awaited the next catalyst:

Last week’s GDP report of 2.8% in the third quarter strengthened the dollar and of course raised speculation of a change in monetary policy. This was up from 2.5% in the second, relatively tepid but much improved to what we’ve grown accustomed.  The number of times that we’ve seen in financial publications, “The increasing prospect of the Federal Reserve tapering its stimulus program” since June is absolutely unbelievable. This has come with improved housing reports, stronger than expected GDP, construction numbers, consumer spending and almost everything EXCEPT what Bernanke told us matters… Unemployment and Inflation. While neither of those goals are within reach and 11-1 Fed Board members continue to vote strongly in favor QE, the financial media has continued to harp on the issue. Anyway, you know my frustrations here… the beat goes on.

Decode the GDP number?

There’s more to the recent report than meets the eye. An increase in business inventories from the second quarter was a factor driving the number higher and both exports and imports fell significantly from Q2. While imports are looked at as unfavorable and inventories an investment on a balance sheet, sometimes a drop imports and increase in inventories can signify decreased consumer demand.

Metals

Gold is testing support at $1280 on a stronger looking dollar. Again, this strength is hormonal and will be exposed in due time. As we’ve continued to say… we believe gold will test the its 52-week lows at $1200, and as bears flock and bulls take losses – could make a move towards 1000 in the medium term. A final move may not be until Fed tapering. Long term will be an entirely different story… stay tuned.

Stock in- Play … Facebook ($FB)

Facebook broke support at 46.70 which is bearish for the company. We believe recovery back to 47.50 – 48.00 is in the cards but will ultimately correspond with lower lows. We don’t see this getting back to its 52 week high this year or shortly after.

Bottom line

We expect caution to be the story over the next few days as bulls decide if they have another push or bears take over on a retreat back to mid 15,000. Expect volatility to remain reasonable and anything but a break in 14,800 support keeps and major change US policy keeps the smart money long and DJIA and S&P going medium term.