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Will the Rally Hold or Will it Reverse Course?

Stocks ended nominally higher after Wednesday’s drubbing closing on the pivotal and technically important 200 day moving average line of the S & P 500.  As noted many times, the markets are overly influenced by technology based trading; trading that places great emphasis upon this moving average line.  Equites were considerably higher throughout the day but ended lower on late afternoon selling.

As noted several times, the averages, albeit not the typical stock, is weathering the negative headlines extremely well, perhaps the result of the significance of the 200 day moving average line and the immense liquidity added to the financial system via global central banks.

Greece is still in the headlines with all expecting a resolution on Sunday.  The narrative around China is increasing to perhaps to a crescendo.  And then there is Iran.  At this juncture an agreement will not be reached by today’s deadline.  Negotiators are confident that a compromise will be made but not by the self-imposed deadline.

And what about Puerto Rico.  Currently the issues facing this island Commonwealth is more of a sideshow.  I don’t think this debt crisis will rise in market significance but I think it is a great example of what can possibly happen to greatly indebted states who have promised unaffordable benefits and entitlements to their residents/workers.

What will happen today?  FRB Chair Yellen speaks today.  Will she offer any further insight to the Fed’s thinking?

Equities should open sharply higher as Greece submitted proposals to its creditors which according to newswire reports is similar to proposals that the EU had suggested in prior weeks.  Moreover China again rallied but I must write about 50% of its stocks are still not trading.

Will the rally hold or will it reverse course as was the case in yesterday’s trading?

Last night the foreign markets were up.  London was up 1.25%,Paris up 3.03% and Frankfurt up 2.18%.  Japan was down 0.38% and Hang Sang up 2.08%.

The 10-year is off 12/32 to yield 2.36%.

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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.