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Was Friday a “dead cat bounce?” I do not know but all had small sense of relief from the relentless selling pressure that has decimated the markets. The catalyst for the rebound was oil’s rebound from 12 year lows—the greatest advance in seven years–and financial stocks. Treasuries had their biggest drop of the year.
Commenting about January’s retail sales, I thought the statistics suggested the economy is not falling off the proverbial cliff. In fact one subset is consistent with three percent growth.
Late last week there were a chorus of “influential” icons commenting the markets are devoid of reality, that prices have fallen to dramatically against the current and expected economic backdrop. The economy is not about to enter the abyss as the narrative is suggesting.
Several have stated the markets are “devoid of rationality” that are “overly influenced by cross correlated trading strategies.” Bloomberg writes the Dow has now registered 29 consecutive sessions with intraday moves of more than 200 points. Wow!!
I hope these comments are the beginning of a crescendo that will begin to limit these “cross correlated trades” which according to the American Cattle Association is “distorting reality.”
What will happen this holiday shortened week? Earning season is coming to an end, a season where profits again generally surprised on the upside, the result of dumbed down expectations, but contracted for the fourth consecutive quarter.
The economic calendar is comprised of various inflation indices, housing and manufacturing statistics and weekly jobless claims.
Last night the foreign markets were up. London was up 0.57%, Paris up 0.50% and Frankfurt down 0.47%. China was up 3.07%, Japan up 0.20% and Hang Sang up 1.08%.
The Dow should open considerably higher as China opened strong following its closure in celebrations of its New Year. Oil is higher on reports that Saudi Arabia and Russia are to freeze oil near record levels, the first such coordination between OPEC and non OPEC countries in two countries in 15 years. The 10-year is off 9/32 to yield 1.78%.

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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.