Here’s the news of the week – and how we see it here at McAlvany Wealth Management:

Decision Point for Stocks…

The Dow industrials managed to stay out of technical danger this week by closing just above their 100-day moving average by the end of trade on Friday.  We imagine that the battle lines have been drawn in this area, since a fresh and powerful round of buying (manipulation perhaps) appeared when the Dow broke below the 100-day mark, subsequently pushing the Dow into safe haven territory for the weekend.  Upside volume, however, remains paltry – suggesting that the 200-day average (just over 100 points away) now beckons.  The question, of course, is whether the Dow can hold above the threshold, as it has five times so far this year.

That said, the news focus is beginning to shift to corporate America. There, a bear market in earning is clearly underway, which poses a grave threat to those still clinging to Keynesian policy and its supposed magical healing powers. This bad news arrives despite a decent round of economic data released this week, where jobs, housing, durable goods, and of course GDP (in the U.S. and U.K.) were quickly touted as further evidence of “recovery.”  As to those positives, all we can say at this point is “wait and see.”  The market may smell trouble ahead, since the majority of these entities depend for their continued health upon the Fed successfully manipulating mortgage and Treasury rates lower – a feat we doubt can be achieved.

As for the metals, following some profit taking, they seem to be having trouble deciding whose side they’re really on –the economy’s or that of a looming crisis.  We think they’ll remain aligned with the latter, but they may need some coaxing from the Fed – which will likely act only if the recent spate of positive economic news turns negative again.

Spain has taken the lead in that regard. Its bond market seems to have fully discounted the Draghi (“unlimited” bond buying) effect, and its level of unemployment is on the rise (to 25.02%) yet again.  As for the US economy, October may pass into history as a foregone conclusion, with the Fed having successfully pushed us along on that proverbial string into November.

Best regards,

David Burgess
VP Investment Management