1st March - S&P outperformance approaches all-time-highs
04 March 2013
TECHNICALS:
WEEKLY CHART
The strength of S&P ( iShares ETF for £ based investors) is clear against the FTSE.
Both the long-term trend from 2007
and the short-term reversal at the beginning of 2013.
And of course the absolute strength is clear from the price action.
DAILY CHART
The short-term S&P futures (Mar 13) chart shows the market bouncing sharply without retesting the support beneath the market.
But there may be some difficulty as the market approaches the 1574 All Time High
FUNDAMENNTALS:
The Bull run in the S&P has stumbled over recent weeks, but arguably with good cause. The hesitancy began with the release of FOMC minutes the previous week which appeared to show Fed policy makers starting to question their open ended bond buying program.
The minutes revealed some policy makers arguing it might be prudent to reduce the amount of bonds the Fed buys each month, others thought the time frame should be reduced, but the majority argued the policy should continue as is.
At the same time, data in the US turned a little more mixed and the Italian election looked increasingly likely to produce a hung parliament with no single party able to form a government. Indeed it was becoming increasingly clear that the protest vote against austerity was likely to be the main winner, which subsequently proved the case.
The reaction to these events was familiar; rise in risk aversion and buying of Bonds at the expense of equities. But this time the setback was more limited albeit volatile.
But does the price action of recent days mark the limits of this rally, especially as the all time high is increasingly coming into view, or is it just a pause before another push higher?
We think this market continues to look well set to make further gains. The economy continues to mend albeit at a slow pace, and the Fed seems more committed to its bond buying policy than the recent minutes seemed to reveal..
This week Fed Chairman Bernanke appeared before the Senate and the House to give testimony on monetary policy and the state of the economy. Bernanke used both occasions to re-affirm the Feds commitment to its current policies. Bernanke pointed out that any negatives that might arise from the policy are minor compared to the benefits to the economy and he gave a clear impression that there appears no immediate danger of the Fed changing course.
These words clearly soothed the jangled nerves of equity traders and when Q4 GDP was released earlier this week, it had a limited impact on the market even though the number fell short of consensus.
However traders reacted to the fact that a small Q4 GDP contraction, reported in January, had morphed into a small Q4 GDP expansion.
Looking ahead the Fed has signalled its commitment to the current accommodative policy stance. The new government in Japan has committed itself to stimulating the economy through Central Bank policy and fiscal policy.
The only question mark remains the Euro zone. But we judge US equity markets will ultimately focus on US domestic growth and rally, leaving Euro zone markets to go their own way; a decoupling.
So can the S&P rally through the previous all time highs?
We judge it can and will. Traders seem to have moved on from the financial crisis/recession mentality and are looking towards the next period of economic expansion.
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07th Mar - Copper Weakens Towards 76.4% Support 
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1st March - Bears of US Bonds routed