7th September 2012 - The irrepressible S&P
10 September 2012
TECHNICALS:
WEEKLY CHART
The just can’t stay beneath the Prior High 1372 and looks set to drive on up to the 1574 level.
DAILY CHART
The day chart shows the break up through the short-term, medium-term and long term Prior highs. Establishing powerful support beneath the market.
The bulls are in control.
FUNDAMENTALS:
The S&P has proved to be a resilient market. After a late Spring and early Summer sell-off, the market has rallied solidly, and begun to trade above the highs made back in April of this year.
Despite an intense period earlier in the year when the Euro Sovereign debt crisis was seemingly coming to a head when the news flows were almost solely focused on Greece, Spain and Italy and whether one or all would ultimately be squeezed out of the currency Union, this market has retained its bullish tone.
Indeed, throughout much of this year the US economy has been slowing. And although the growth rate remained in positive territory, there was little doubt the US economy had lost momentum.
The Fed, up until recently, viewed the slowdown as a mid year lull in activity and expected activity to pick up. Moreover, until recently FOMC minutes had been moving away from seeing a need for any new Fed intervention.
But all of this changed two weeks ago when the FOMC minutes were released and showed the Fed was now far from relaxed about the economy. In fact, it sounded almost as if policy makers were close to panic.
Last Friday, Bernanke had a chance to steady the markets in a key note speech at a Fed symposium at Jackson hole. The tone of his address was in line with the FOMC minutes. His main concern was clearly the still stubbornly high unemployment rate and the human an economic waste that represents.
He reminded his audience, which was wider than those at the gathering, that the Fed has a dual mandate to deliver price stability and full employment. Price stability is hardly an issue right now, since inflation is low, but the level of unemployment is and Bernanke said the Fed has the ability to do more.
Clearly markets now have reason to rally; the Fed will intervene to spur growth and the intervention could be substantial, only timing is left vague. So where as the S&P found support previously from an economy that was growing, albeit slowly, it now draws support from the prospect of Fed intervention.
But yesterday the ECB announce an open ended Bond-buying program designed to bring down the yields on Euro zone peripheral debt and help countries like Greece, Spain, Portugal and Italy meet their austerity commitments. This has had a clear impact on markets. The Euro and Stocks rallied.
So, if the Fed does go ahead and deliver a 3rd leg of its QE program we anticipate a new leg of the Bull run in the S&P as traders position for a pick up in growth.
How likely then is it that the Fed will deliver a new round of QE? Judging by the tone of the FOMC minutes and Bernanke’s recent speech we think the Fed could act at its up coming September FOMC meeting.
We think Bernanke was vague about timing simply because he did not want to be seen to be pre-empting the deliberations of his FOMC colleagues.
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13th Sep - The Rally in Gold Continues 
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06th Sep - GBP/USD Recovery Still in Progress