MooTrades.com

This is traditionally a light volume week with little trading and low volatility. Nominally the last few days have been pretty flat compared to past trading weeks. I think we’ll see things pick up again after labor day. We’re still quite overbought and due for a pullback, perhaps to the 50 day moving average around 950 on the S&P 500.

Now that the equity markets around the world have rallied about 50% or more it seems that interest rates have heightened around the world as well. In the US 10 year bonds were as low as 2% in March and now have neared 4%.

If home owners need to refinance their mortgages to lower rates, but those rates are no longer available how can we have a sustainable recovery in housing (which is always a driver behind economic recoveries here)? Doesn’t this lack of available credit and affordable interest rates undermine the recovery efforts?

In addition, with many bright minds believing China was the key to the recovery how does China’s correction affect the views of equity investors? Is the global rally in question?

It looks like safe haven assets like bonds, yen and dollars are becoming more attractive vs. risky assets like commodity currencies, commodities, equities and emerging markets in general.

I think we may be entering the next leg down as Mohamed El-Erian and others have expressed the same sentiment I have. The rally is running on fumes.

We probably will retest the lows in the market and bring some fear back in to the trading. VIX is up 6%+ today and we’re seeing a lot more put buying as institutions either bet against or insure profits in stocks.

Consumer sentiment was terrible and there is now some question as to whether the FDIC is solvent after taking over Colonial Bank. All the Maes are probably completely toxic now, too. I hope foreign central banks continue their generosity or the falloff here could become a disaster.