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Stocks Are at Key Resistance Lines

Stocks are targeting the highs of 2008. However, the secular cycle that started in 2000 remains bearish.

Citigroup is under pressure.

As expected, the Federal Reserve left rates unchanged. The institution saw some improvement in the unemployment struggle and monitors the increase of oil prices very closely. It should continue with Operation Twist until the unemployment rate will decline further. Las week, the Fed announced the majority of U.S. banks passed a round of stress test. The simulation included a deep world's recession, a 21% decline in house prices, a 50% slump of equities, the unemployment rate rising to 13% and the failure of a large European bank. In order to be promoted, banks had to keep the ratio of common equity to risk-weighted assets above 5%. Only four of the banks, out of nineteen, failed the test. It includes a large institution such as Citigroup. Another bank, Goldman Sachs, is adjusting with some difficulty to the new reality of becoming a commercial entity in compliance with Fed regulation. Earning prospects have been reduced, since the bank was forced to give-up the lucrative derivative business. Talents have left the company.

The combination of job and GDP growth should continue for some more time. The S&P 500 index could target 1450/1500 over the short/medium term. Nonetheless, the longer-term cycle stays bearish. In the past 100 years, lateral consolidations continued for 13/15/17 years (top/bottom), before resuming the long-term up-trend.

Greece saved for now.

With the acceptance of a bond-swap deal by private creditors, the Greece's saga might be behind us (for now), but the European debt crisis is far from over. More and more capital is flowing out of peripheral European countries into German banks. The capital flow is also affecting core states such as France and Belgium. E.C.B outstanding of loans to banks, via the three-year loans practiced in December and February, rose to more than euro 1.100 billion. The main beneficiaries are Spain, Italy, Portugal, Ireland and Greece. The risk for new toxic assets, within a fragile balance sheet, is always possible. Greater federalization is the key for Europe. However, for now, local interests have prevailed over a true European policy. Austerity measures alone are not enough. Growth should follow. A new economic contraction would put the instable euro zone's system at risk again. Historically, world recessions have occurred every 4/5 years. The last one was recorded in 2008.

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