Grillini Storms Italy

David Fry's picture

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“For many young Greeks, the election in Italy now provides a model. If the population of the third-largest economy in the euro zone so openly opposes the austerity measures, then the exit of individual countries from the euro zone is no longer taboo.” Der Spiegel 

 

Italy will be holding another election, which puts the country in a dead calm until there is a functioning government. The key in Italy is the outsider and comedian Beppe Grillo whose party has put the government in dysfunction and in parallel has created a monster of an uprising against corruption within both political parties. The movement itself is larger than Grillo and may be the well-springs of copycat movements throughout southern Europe that threatens the euro and the establishment. It’s a disruptive a movement and would be like a Ron Paul to U.S. political parties. No matter the outcome, the bottom line is Italy will remain a drag on eurozone equity prices until there is a resolution.

 

There was little U.S. domestic news Monday. Most news that mattered was from China and some further angst from the eurozone given Italy. Chinese ISM Services Index was weaker than expected, but of greater importance is the government lowered the boom on the property market bubble. It declared a 20% tax on property gains, raised down payment requirements and interest rates. This put the Shanghai CSI 300 Index (similar to our S&P 500 Index) down to two-year lows. China’s troubles at this stage and of their size matter hugely and have ripple effects throughout the globe. It’s more than just a flat tire that will slow global economic growth. This particularly will negatively affect emerging markets dependent on exports to China.

 

U.S. markets fell early and then rallied, not coincidentally, with Fed Vice-Chair Janet Yellen stating: “At present I view the balance of risks as still calling for a highly accommodative monetary policy.” Algos immediately hit the buy-button driving markets higher. There’s little question in my mind the financial media and product promoters want the DJIA record to suck more money into markets from Main Street. To get that record, they’ll do what they have to do. They’ll put issues like a weakening China, the sequester nonevent and eurozone on the back burner while they can.

 

Stocks were led higher by the bigger names in indexes like the Dow, which include IBM, WMT, MRK and HD. High-priced stocks in price-weighted indexes may deceive investors as to what’s really taking place in broad markets. You have to be in the right sectors like Transports (IYT) and biotech (IBB) which were standout performers. As usual, there were a few stocks orphaned like JC Penney (JCP) now down 23% in one week.

 

For subscribers to the ETF Digest we raised cash to 50% Monday in our flagship model portfolio. It will be interesting to see if QE just trumps all bad news that seems ubiquitous. However, at the same time we launched a new All-Weather Model Portfolio, which will remain fully invested. We also did a brief video profile of the consumer sector (XLY) which is free to view.

 

Below is an internal weekly chart of EEM (iShares Emerging Market ETF), which is annotated primarily by weekly DeMark 1-9 sequential counts. The 9-count was registered the week of January 18, 2013. That was a good top call. The subsequent decline is very much related to current events in China and how it negatively affects the country constituents of EEM

 

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Tuesday is just the ISM Non-Mfg Index which with an expected reading around 55.

 

I just believe the DJIA will hit and take out its previous all time high. There will be pompoms and much fanfare. Bullish talking heads will be on TV promoting “what are you buying now” advice.