Saturday, July 7, 2012

Markets sometimes rhyme

It's often said that while markets never exactly repeat they often will rhyme.  Given the tepid price action this week with three central banks easing (China, England & Euro zone), a growing realization that all the hype after last week's EU summit is fading away and the spate of disappointing global economic data that came out I thought I'd post a chart that should give us all some food for thought:

(click on chart for larger image)

Here's a 3.5 year daily chart of the Wilshire 5000 Index which is the broadest index of the US equity market.  The vertical dashed lines delineate April 2010, April 2011 and April 2012.  The black boxes highlight the price action for the three periods.  I've also shown the timeline for the two FED unsterilized QE programs.

Obviously the three time periods do not exactly match but the price action certainly rhymes.

Next week is a quiet week on the US economic calendar although companies start announcing their second quarter earnings reports.  In the absence of any central bank rhetoric (and I'm not expecting any), I'm looking for disappointing reports from multi national companies along with deteriorating Spanish and Italian bond markets to weigh on equities and commodities. 

The Eurogroup Economic and Finance meeting starts on Monday (7/9) and lasts for two days.  Don't expect anything new to come out of the meeting and it may end up as a squabble over the proposed  agreement from last week's meeting for the ESM to lend directly to Spanish banks.  If anything, this will also provide a catalyst for downside price action.