Last week: my blog comments noted that, “This market wants to go higher“…this week: the major US and European stock indices all closed at new 3 month highs despite the mid-week sell-off on the lack of new programs from the Fed and the ECB. The US$ Index closed at a one month low…the AUD went to a 4 month high, while the CAD touched par for the first time in 3 months…US and CAD government bond yields rose.
Last week I noted:
1) We had Key Weekly Reversals higher in Euro, Swiss, CAD, AUD, DJI, S+P, TSE, Gold (in USD terms) US treasury yields from 2 through 30 year maturities, and a Key Weekly Reversal lower in the US Dollar Index.
2) Despite the manic-depressive mood swings, despite the torrent of capital rushing into perceived safe haven bonds, despite the seemingly intractable European debt crisis, despite the sluggish US and global economy… it seems that THE STOCK MARKET WANTS TO GO HIGHER…the DJI has rallied over 1000 points from the June 4 lows…over 2,700 points from the October 4 lows.
3) Why? It seems as though we are mainly trading off macro political or central bank inspired headlines…or rumors…its seems as though the markets expect central banks will take further reflationary action…will print more money…which will inspire risk on…and higher asset prices.
4) The technical view: Technicians make the point that you can never know all you need to know to make the best market decisions…but if you look at the market you can see what it’s doing…so freeyourself of your opinions about what the market should be doing…and look at what it is doing…the US stock market rallied right through this month’s previous highs and closed at its best levels in nearly three months…this market is a classic case of climbing a wall of worry.
5) There has been a huge amount of cash sitting on the sidelines for the past few years due to economic and political uncertainty and that money could come into this market…taking it much higher…yes, the economic and political uncertainty that has kept that cash on the sidelines still exists…yes, those problems may only be intensifying…and yes, it’s entirely possible that the stock market may reverse tomorrow and drop a few thousand points before Christmas…but…since March, 2009, the US stock market has been trending higher and, as skeptical as I am and as skeptical as I have been, I have to say it looks like this market wants to go higher.
For my short term trading accounts I’m long the
The dramatic crashes in the stock market, the commodity market, and the housing market over the last five years caused a real crash in investor confidence…in investor’s willingness to take on risk…we see that demonstrated by the high levels of corporate cash as companies are collectively cautious….with good reason, perhaps, but cautious none-the-less. Certainly investors are more likely to see the glass half-empty now than they were during the times of irrational exuberance. So despite the stock market rallies we can see in the charts below the tone remains fretful…fearful…as though worried that all the gains could be gone in a heartbeat…a classic example of a market climbing a wall of worry.
The US stock market turned higher on (Key Turn Date) June 4 and has chopped higher ever since…now at its best levels in 3 months
The US stock market has been grinding higher for over 3 years…note the very rare and very powerful Monthly Key Reversal Higher in October 2011 (the DJI is up 2700 points from the Oct 4 Key Turn Date.)
The AUD (the high-beta risk-on/risk-off currency) has rallied over 10% since the June 4 Key Turn Date…
Gold made its All Time High above $1900 last August and has found a floor around $1525-30 several times since then. It popped above its s/t downtrend the past two weeks on USD weakness…a rally above $1630 could set up a test of $1700+ while a breakdown below $1550 would set up a test, and likely a break, of the $1525-30 floor.
Senior Vice President and Derivatives Portfolio Manager
Victor Adair is a Senior Vice President and Derivatives Portfolio Manager at Union Securities Ltd. Victor began trading financial markets over 40 years ago and has held a number of senior positions during his long career as a commodity and stockbroker. He provides daily market commentary on CKNW AM 980 radio Vancouver and is nationally syndicated on Mike Campbell’s weekly Moneytalks radio show.
Victor’s trading focus is primarily on the currency, precious metal, interest rate and stock index markets and his clients are high net worth individuals and corporations.