Global stock markets continued their Merkel induced rally and the S&P 500 is now within striking distance of the highs pre-Lehman Brothers in 2008 and even though many are fighting the rally Marc Faber might be right with his call that the S&P will head toward 1500 – then collapse, don’t forget.
You will be reading that this is a light volume rally and thus is tenuous, that is true. You will be hearing, from me as well as others, that the economics and topline revenues in evidence from the recent reporting season don’t support the rally, that is also true. You will be hearing and reading that in the end it is the economy that will win out, that is very true.
But markets and market pricing are not always about economics and earnings. They are driven by an irrational beast called Homo Investor or Homo Trader – as opposed to Homo Sapien whom is mostly just a working stiff trying to make a living.
So the rally continues.
One strange trait being continually voiced by investors and traders is either fear of missing the rally and now fear of missing the rally because of the Fed and what it might do. Indeed Reuters has a quote to this effect in one of its reports over the weekend:
The S&P 500 is a scant 0.06 percent away from closing at highs last seen in the pre-crisis days of June 2008, even as an unimpressive earningsseason draws to a close. The looming U.S. presidential election adds to the uncertainty, and inconclusive economic data makes any bet on further economic stimulus from the Federal Reserve a risky gamble.
“I’m not laying out any new shorting strategies on fear the Fed could come in,” said Brian Amidei, a managing director at HighTower Advisors based in Palm Desert, California.
There we have it again – investors were worried about the downside for many months but they are now worried about missing the topside rally that has been occurring and might still be coming. Technically a close on the S&P above 1420 opens 1500 as a pure fibonacci extension of the rally, consolidation and next wave.
At the close of play Friday, the S&P 500 was up 0.19% to 1,418, the Dow was up 0.19% also while the NASDAQ rose 0.46%. Apple made a new all-time high in the $648 region and one broker has now upgraded their target from $800 to $900. If I’m any indication of how Apple is taking over our house with 4 iPods, 2 iPhones, 2 iPads and so far 1 Mac then perhaps they will get there – we were a PC house until recently.
In Europe, Madrid was up another 1.83% and their 10 year bonds rallied again and look like they have broken this years uptrend. The FTSE was up 0.31%, the DAX 0.64% and the CAC 0.23%.
In Australia our market was up 0.9% on Friday and looks like it is breaking higher – see Chris Becker’s Techincals over at Macro Investor this morning for more information.
In FX Land we saw a de-coupling of the Australian Dollar from the risk rally over the backend of last week on, I think, a couple of stories and thoughts. First is Treasury boss Martin Parkinson’s thoughts that a stronger Aussie equals lower interest rates. Absolutely no doubt! Equally though the Wall Street Journal had an article about the rotation out of the Aussie and into some smaller currencies – that’s the portfolio effect of not being able to put any more of your assets in a country but also a reflection that the Aussie might be toward the top of the perceived value range given the falling terms of trade and Chinese economic outlook. The Aussie is around 1.0420 this morning.
The Euro also fell a little although once again in a tight range as the US dollar benefitted from the University of Michigan consumer sentiment data released Friday. It sits this morning at 1.2340, Stirling is around 1.57 and USD/JPY is 79.57 as the rally continues for the USD and the Yen weakens which helped the Nikkei on Friday as the market focussed on exporters.
On commodity markets the CRB was up 1.09 pts to 303.48. Crude was up another 0.43% to $96.01, the grains were mixed with wheat up 1.43%, soybeans up 1.25% and corn down 0.03%. Gold was flat but Dr Copper rose 0.98% and while it is in the middle of the recent range it is only a few cents a pound away from breaking a long term trend line.
Lets have a look at some of the markets we follow using our AVATrade trading platform charts.
EUR/USD: For the Euro to kick sustainably higher I would want it to close above 1.2383/88 recent highs. Euro has been drifting lower but is realistically range bound and boring. 1.2240/50 is key short term support and then 1.2150/1.2110. Resistance at 1.2350/60, 1.2383/88, 1.2450/72, 1.2572 and 1.2740/50:
AUD/USD: We said for most of the past week that “overall AUD remains strongly in an 8 week uptrend but likely to probe lower to find where real support is once again”. Now is the time as it sits on the lower bound of the uptrend. A break of 1.0400/20 would be needed to signal further downside but we always respect trendlines until or unless they break:
DATA: It is a boring 24 hours and boring week on the data front – markets will largely be left to their own devices early in the week.
Here is today’s data and you can click here for the full week’s calendar. Please note that data coloured blue is important to me and that which is coloured red is important to everyone.
And here is how the markets closed at 6.00 am this Morning courtesy of AVATrade
Twitter: Greg McKenna. He is the Chief Investment Officer of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.
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