Financial markets love any story that involves printing money. Tuesday’s report showing China’s import growth fell to a two-year low prompted speculation that “China will loosen monetary policies to bolster economic growth”, according to Bloomberg. Tuesday’s gains left numerous markets overbought and susceptible to any negative headlines.

Europe may provide those headlines. Despite an eye-popping increase in the European Central Bank’s balance sheet, the yield on an Italian 10-year bond remains over 7%, which is unsustainable. Between now and March, when Greece has to pay off some monster bonds, negative headlines may become commonplace again. As the markets were focusing on China bringing new money into the system, Europe continued along a deflationary path. From Reuters (01/11/2012):

Hedge funds are taking on the powerful International Monetary Fund over its plan to slash Greece’s towering debt burden as time runs out on the talks that could sway the future of Europe’s single currency. The funds have built up such a powerful positions in Greek bonds that they could derail Europe’s tactic of getting banks and other bondholders to share the burden of reducing the country’s debt on a voluntary basis.

As outlined previously, we remain concerned about the sustainability of any S&P 500 gains above 1,285 (see 1:40 – 3:35 mark of December 3 video). The green arrows in the chart below show instances when the blue trendlines acted as both support and resistance. Those lines intersect near the orange arrow and represent possible resistance for stocks.

If the S&P 500 can push higher, the next points of possible resistance come in near 1,305, 1,313, 1,326, 1,334, and 1,343. If signs of a reversal surface, we may cut back on our long positions (IJR) and consider the short side of the market.

Ciovacco Capital Management

Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com

Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. As a registered investment advisor, CCM helps individual investors, large & small; achieve improved investment results via independent research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions. When looking at money managers in Atlanta, take a hard look at CCM.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.

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