03-25-2012 observations

We said last week we expected the market to flatten and then turn down.  I would say that is close to what happened.   This week we expect the market to grudgingly give some ground.  Since it is end of month and end of quarter we may see some portfolio adjustments.  A fund that has seen APPL (IBM) exceed 5 % of the portfolio because of its rise may have to trim back under 5% (if they limit any one position to 5%).  So we could see some weakness in high fliers if this happens.  Not sure to what extent this could be an issue, but if high fliers give ground then the market as a whole will give ground.  Just something to keep in mind.

Longer term is operation "Twist".  QE1 and QE2 both boosted equities in the spring of 2010 and 2011.  TWIST seems to be doing the same this year as the FED sells short term bonds and buys longer term bonds as it attempts to suppress longer term rates.  This has been working, but 10 year rates have started to move up, so maybe the FED is out of ammo.  Seems they are running out of short term bonds to sell.    I suspect we may see a repeat of a sell off as the FED operation "Twist" comes to an end same as we did at the end of QE1 and QE2.  And "Twist" may be coming to an end sooner than expected - which could lead to a market downturn as early as April/May  (there is some indication of that in the cycles). 

Here is the SPX:

 GL traders, have a profitable week.