Dear Subscribers:
World markets celebrate with a powerful rally the agreement in the European Union to lend 110 billion Euros to Greece and that banks take a voluntary "haircut" of 50% to the debt lent to this country.
There is also an agreement to add capital to European banks once they have written down the losses for the Greek haircuts.
The result is a powerful rally in all markets across the world. There is a strong risk appetite as the Dollar Index tanks with treasuries.
The S&P 500 breakout over its 150 day moving average and the resistance of 1260 which was our initial target for this rally.
Something that caught my attention today is that even though everything is rallying, the sectors or stocks that normally lead the market are gaining on par or lower than the averages.
The sectors and stocks that today lead the rally are laggards or that have shown bad fundamentals and low growth.
For example, the leading 20% of the gains in industry groups are from sectors that rank on average 159 out of 197. The market's worst industry group, Solar Energy, is the second biggest gainer.
This is a bit concerning due the the weak participation and leadership of today's breakout. Perhaps the leadership will change from now on. We will see.
Macro data was on line with expectations.
Third quarter GDP grew by 2.5%. The interesting thing about today's report was that
personal consumption expenditures was one of the biggest contributors to GDP together with fixed investments.
Personal consumption grew thanks to an increasing use of credit by the consumer who decreased its savings rate during the third quarter.
Public spending was flat during the quarter.
Unemployment claims come in line with expectations with a reading of 402K which isn't a good reading for decreasing unemployment.
Best Regards,
Victor Riesco
