World Week Ahead: Bulls firmly in charge

World Week Ahead: Bulls firmly in charge

Dec. 20 (BusinessDesk) - A five-level slashing of Ireland’s debt rating. Expanded mortgage and insider trading probes in the U.S. Intensified sabre rattling between North and South Korea.

Hardly signs of the good cheer one is expected to find in the holiday season.

Yet investors just can’t help themselves - and pay no attention to the barrage of bad news.

On Friday, the Chicago Board Options Exchange Volatility Index, or VIX, fell to its lowest since April while at the same time the Standard & Poor’s 500 clung to a two-year high. It’s as if the bulls can do no wrong.

"The bullish camp is - I'm sure - very pleased at the day-after-day, slow steady increase they are engineering," Larry McMillan, president of options research firm McMillan Analysis in a research note.

Of course, there are always red flags and they always tend to rise a little higher and there tends to be more of them when markets move in a concerted effort in one direction. It’s a natural defensive reflex; contrarians start to hit the radar screens.

But this time, Santa Clause seems unlikely to be deterred.

U.S. options traders are making the most bullish wagers on banks in more than a year, according to Bloomberg. In particular, these traders are speculating financial companies will rally as the world’s biggest economy improves and analysts predict 21% profit growth next year.

“People in the options market are betting heavily that these stocks will go up,” Chris Rich, head options strategist at JonesTrading Institutional Services LLC in Chicago, told Bloomberg.

And who’s to step in front of the herd?

“When I see everyone marching in the same direction at the same time, that’s something I take note of,” Rich said. “It’s a strong signal.”
Still, the world and its markets are painted with one brush.

The euro fell to a two-week low against the U.S. dollar on Friday, in part because of the Irish rating cut, because sovereign debts woes appear set to hound the currency for months and months ahead. And the bears seem in control at least here for now.

If the single currency breaks below US$1.3104, its 200-day moving average that is deemed a near-term support level, further declines are a good bet, traders said.

“The market is afraid of a financial rupture in the euro zone,” Stephen Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York, told Bloomberg.

And the two-day leaders summit in Brussels at the end of last week did little to ease those fears.

While the leaders approved plans to adopt a permanent financial emergency response program, they didn’t move up its implementation from 2013. That leaves the euro vulnerable to further speculative runs for - well - two years.

Yet at the end of the day the euro’s woes have already faded. Investors weren’t necessarily shocked by Ireland’s downgrade. And investors won’t be shocked when debt woes make it more expensive for other euro-zone members to borrow money.

Why?

It’s the guy with the red suit and white beard who’s hard at work across the U.S. The passage at the end of last week of President Obama’s tax deal already has led strategies to forecast sharply higher economic growth in the U.S.

Alan Greenspan, the former Federal Reserve chairman, on Friday said he thought the U.S. could expand by 3.5% or more in the current quarter. “The U.S. economy unquestionably has some momentum,” he told Bloomberg.

Despite the hit that Greenspan’s reputation took in the analysis of the reasons for the global financial crisis, once again it’s the bullish interpretation of what he says that investors are hanging on.

So as the week gets underway and the mad final dash for presents accelerates, investors should cast a look at their portfolios at least once more before the year closes.

Cases are being made to add the big financials, techs and industrials - the stocks which seem indifferent to rating cuts, court cases and missile launches.

(BusinessDesk)

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