Market Meets New Wall of Worry Or More Likely Just Brief Profit-Taking On Way To Higher Highs

Stocks pulled back after a big advance and that can be good for bull markets

Most of the bricks in the previous wall of worry have been removed.?Economic reports have continued to improve over recent weeks; in manufacturing, the service sector, retail sales, durable goods orders, and even in the employment picture, where 151,000 new jobs were created in October, more than double the 70,000 that economists expected.

The uncertainty over the Federal Reserve’s QE2 decision has been resolved with the Fed adding to the stimulating atmosphere, providing another round of quantitative easing in spite of the already improving economy.

The major U.S. market indexes, including the Dow, S&P 500, and Nasdaq rallied back to, and then above the potential resistance at their April peaks, before pulling back some this week.

Investors have become even more bullish and optimistic. This week’s poll of its members by the American Association of Individual Investors showed 57.6% bullish, the highest level in almost four years.

The good news apparently also reached Main Street. On Friday morning it was reported that the Thomson Reuters/University of Michigan’s Consumer Sentiment Index improved to 69.3 in early November (its highest level in five months) from 67.7 in October.

So what has been wrong with global markets this week?

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The U.S. market closed down roughly 2.5% for the week. Emerging markets, which many analysts projected would benefit the most from inflows of additional liquidity provided by the Fed’s decision, were down the most. Brazil, India, South Korea, closed down two to three percent for the week, while China closed down a big 5.5%. Meanwhile, Japan, a large developed country, which was not supposed to fare as well as emerging country markets, closed up 1.0% for the week.

A bet against emerging markets via the ProShares UltraShort Emerging Markets ETF, symbol EEV (designed to move up when emerging markets move down, and leveraged two to one) closed up almost 9.0% for the week.

Was it just that markets had become short-term overbought and ran into a brief bout of profit-taking, particularly since this was the week before the month’s options expirations week, and the week before tends to be negative?

If so, markets are likely to be back up next week since the decline this week took care of the short-term overbought condition, and next week is the week of the expirations, which tend to be positive.

Or was the decline the beginning of something more serious?

The market does seem to have a new wall of worry just a week after concerns about the economic recovery, and whether the Fed would or would not provide additional quantitative easing, faded away.

The bricks in the new wall of worry include:

• Concerns that the Fed’s additional stimulus may cause new problems rather than help the economy by encouraging home purchases or providing new jobs.
• Worries that commodity prices had spiked up into bubbles which may burst, a worry that struck Friday with the big $40 an ounce (3%) plunge in the price of gold, and equally large declines in the price of oil and other important commodities.
• Apprehensions about the activities of the Chinese government, including talk that it might hike interest rates to dramatically slow its globally important economy and ward off threatening excessive inflation in China.
• Anxiety about a potential currency or trade war if the decline in the U.S. dollar continues.

Via technical analysis there is also the U.S. market’s intermediate-term overbought condition above 20-week moving averages, and the high level of investor bullishness (which is at levels of complacency often seen at market tops).

The uncertainties have even extended to U.S. Treasury bonds, which investors have piled into as a perceived safe haven over the last two years. The safe haven over the last two months has actually been a bet against U.S. Treasury bonds. For instance, the ‘inverse’ ProShares Short 20-year bond etf, symbol TBF, designed to move up when bonds move down, has gained 11% since early September, while bonds have declined 11%.

There’s no doubt about it. We are still in a very fluid economic and investing period, not a time for investors to become so complacent as the investor sentiment readings seem to indicate, that they fall asleep at the switch.

(In the interest of full disclosure, we have positions in the U.S. market, the Japanese market, gold, and the ‘inverse’ bond ETF TBF, in our portfolio, at least at the moment).

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Market Meets New Wall of Worry Or More Likely Just Brief Profit-Taking On Way To Higher Highs

Stocks pulled back after a big advance and that can be good for bull markets

Most of the bricks in the previous wall of worry have been removed.?Economic reports have continued to improve over recent weeks; in manufacturing, the service sector, retail sales, durable goods orders, and even in the employment picture, where 151,000 new jobs were created in October, more than double the 70,000 that economists expected.

The uncertainty over the Federal Reserve’s QE2 decision has been resolved with the Fed adding to the stimulating atmosphere, providing another round of quantitative easing in spite of the already improving economy.

The major U.S. market indexes, including the Dow, S&P 500, and Nasdaq rallied back to, and then above the potential resistance at their April peaks, before pulling back some this week.

Investors have become even more bullish and optimistic. This week’s poll of its members by the American Association of Individual Investors showed 57.6% bullish, the highest level in almost four years.

The good news apparently also reached Main Street. On Friday morning it was reported that the Thomson Reuters/University of Michigan’s Consumer Sentiment Index improved to 69.3 in early November (its highest level in five months) from 67.7 in October.

So what has been wrong with global markets this week?

Special Offer: Jim Oberweis bought Baidu at $7.90, earning readers huge profits.? Click here for more recommended stocks in the?Oberweis Report.

The U.S. market closed down roughly 2.5% for the week. Emerging markets, which many analysts projected would benefit the most from inflows of additional liquidity provided by the Fed’s decision, were down the most. Brazil, India, South Korea, closed down two to three percent for the week, while China closed down a big 5.5%. Meanwhile, Japan, a large developed country, which was not supposed to fare as well as emerging country markets, closed up 1.0% for the week.

A bet against emerging markets via the ProShares UltraShort Emerging Markets ETF, symbol EEV (designed to move up when emerging markets move down, and leveraged two to one) closed up almost 9.0% for the week.

Was it just that markets had become short-term overbought and ran into a brief bout of profit-taking, particularly since this was the week before the month’s options expirations week, and the week before tends to be negative?

If so, markets are likely to be back up next week since the decline this week took care of the short-term overbought condition, and next week is the week of the expirations, which tend to be positive.

Or was the decline the beginning of something more serious?

The market does seem to have a new wall of worry just a week after concerns about the economic recovery, and whether the Fed would or would not provide additional quantitative easing, faded away.

The bricks in the new wall of worry include:

• Concerns that the Fed’s additional stimulus may cause new problems rather than help the economy by encouraging home purchases or providing new jobs.
• Worries that commodity prices had spiked up into bubbles which may burst, a worry that struck Friday with the big $40 an ounce (3%) plunge in the price of gold, and equally large declines in the price of oil and other important commodities.
• Apprehensions about the activities of the Chinese government, including talk that it might hike interest rates to dramatically slow its globally important economy and ward off threatening excessive inflation in China.
• Anxiety about a potential currency or trade war if the decline in the U.S. dollar continues.

Via technical analysis there is also the U.S. market’s intermediate-term overbought condition above 20-week moving averages, and the high level of investor bullishness (which is at levels of complacency often seen at market tops).

The uncertainties have even extended to U.S. Treasury bonds, which investors have piled into as a perceived safe haven over the last two years. The safe haven over the last two months has actually been a bet against U.S. Treasury bonds. For instance, the ‘inverse’ ProShares Short 20-year bond etf, symbol TBF, designed to move up when bonds move down, has gained 11% since early September, while bonds have declined 11%.

There’s no doubt about it. We are still in a very fluid economic and investing period, not a time for investors to become so complacent as the investor sentiment readings seem to indicate, that they fall asleep at the switch.

(In the interest of full disclosure, we have positions in the U.S. market, the Japanese market, gold, and the ‘inverse’ bond ETF TBF, in our portfolio, at least at the moment).

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DADT update: Judge likely to refuse Government troops gay agenda

RIVERSIDE, California, a federal judge said Monday she learns to refuse a request from the Government to delay the order to put an end to the army to implement its ban on openly gay troops.

U.S. District judge Virginia Phillips said that it would revise the arguments of counsel for the Department of justice and render a decision as from Monday or Tuesday.

"My preliminary determination is to refuse the application for a stay," Phillips said at the beginning of the hearing.

Phillips said that the Government has not demonstrated that its likely to be detrimental to the troops or in any way impede efforts to implement the new regulations for the military to deal with members of the openly gay agenda.

If it rejects the request, the Department of justice officials say Obama appel.Experts administration say that they will be probably more favourable sites in the u.s. Court of appeals for the 9th circuit in San Francisco and, ultimately, the Supreme Court.

"Away it that decision Gets the presentation of the evidence in the Court judgment, more it is likely that courts will assume that military must have a vital interest at stake," said Diane Mazur, a Professor of law, as opposed to the policy.

The army has promised to comply with the injunction against the policy "not requested, not explain" also that his order remains in place.

Government lawyers had asked Phillips to suspend its agenda while they did call, saying that forcing an abrupt change in policy can damage the morale of the troops as they fought two wars.

The judge declared unconstitutional policy on 9 September, saying it violated the rights of freedom of expression and the right to petition the Government for redress of grievances guaranteed by the first amendment.

Phillips said the policy support military and instead of this preparation has a "direct and deleterious effect" on military by harm to recruit and demanding discharge members service with essential skills and training.

At the time, it has applied to both sides to give its contribution to an injunction and Monday, called "premature" Government's request She said that the Department of justice had much opportunity to modify her injunction before she ordered on 12 October.

Phillips also the Government did not evidence the trial to demonstrate how its agenda would cause irreparable harm to the troops.

Government Attorney Paul Freeborne stated that the Department of justice had no reason to present evidence that his order has fallen.

He said his injunction throughout the country is not realistic and will hurt the military effectiveness because it does not allow for sufficient time for the army to conduct training and education to implement the new regulations.

Freeborne "You are demanding that the Department of justice to implement a massive policy change, a change in policy that can be reversed by appeal," him.

A lawyer representing a gay rights group that brought an action challenging the ban in 2004, Log Cabin Republicans said the Department of justice has had six years to meet and do not have.

Woods ' Government now wants to continue to deprive us of their constitutional rights, and the Tribunal is not required, "said Phillips.Son group says more than 13 500 soldiers fired in politics in the era Clinton administration.

Richard Socarides, a former advisor to the Clinton White House on the rights of homosexuals, said that he does not expect Phillips to residence.

"It seems to have lost patience with the Government's position and me, which is reflected in its decision so far," said Socarides. "But they will probably go to the Court of appeal and Supreme Court and you'll see in a few days that this order was suspended.?

Act of 1993, members may investigate the sexual orientation of staff of the Department and punish for as long as keep themselves .the President Barack Obama stated that he wanted to act repealed at the Congress.

Secretary of Defense, Robert Gates, a Republican and President of Admiral of the chiefs of staff Mike Mullen, top of army uniformed officer, both say they support lifting the ban .but the gates and Mullen also have warned that they would prefer to go slowly.

Gates has commissioned a study scan due December 1, which includes a survey of troops and their families.

President has agreed to the study of the Pentagon, but has also worked with Democrats to prepare a draft Bill which would have lifted the ban, pending review of the Ministry of defence and the certification of the army as the morale of the troops do not suffer.

That the legislation passed in the House of Commons, but was blocked by Republicans in the Senate.

Militant gay rights concerned than Republican gains in the midterm elections next month could make even more difficult to reverse the policy in Congress.

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