By Markos Kaminis
(Wall St. Greek)
:
Over the next several weeks, given the developments at the
European Central Bank ((ECB)) and the U.S. Federal Reserve, traders
should take stocks higher. A look at the three-month chart shows
the impact of deteriorating economic data globally, but daily
action indicates trader interest and hope in further central bank
assistance. Therefore, heading into what looks like a likely
issuance of new quantitative easing from the American central bank
and supportive bond purchases from the Europeans, the next
severalweeks of trading have support.
The 3-month chart of the SPDR S&P 500 Index ETF (
SPY
) shows a flattening of a longer-term bullish trend. However, the
choppiness in between has mostly been driven by speculation about
ECB and U.S. Fed policy action to support. The clearest example of
this came when ECB President Mario Draghi strongly stated the ECB
would support the euro in late July. That set European stocks on
fire, and it came at a time when the region needed some sort of
catalyst.
The iShares S&P Europe 350 Index is up 6.3% since that
fateful day. Unfortunately, as time passed, the market began to see
that
Draghi's words
may not carry with them the will of theeurozone . Bundesbank
President Jens Weidmann remains as a key objector, and German
Chancellor Angela Merkel declared Germany's objection to Draghi's
plan today.
The details of the plan are leaking out, but it is expected to
be formally presented tomorrow, September 6, 2012. It is thought
that the ECB will purchase sovereign short-term bonds of terms of
one to three years. While unlimited, those purchases are expected
to be offset by sales elsewhere in the system in order to sterilize
their impact to euro money supply. That would address my concerns
that the central banks of the world, plus factors not yet
incorporated into consensus thinking, threaten to make fiat
currency worth significantly less over time. Because of the rumored
construct of this plan, and assuming it would be approved, the
action would ease concerns about the region's chances of
experiencing full recovery. This should lend more support for
stocks globally, with a focus on Europe.
Federal Reserve Chairman
Bernanke's Jackson Hole speech
last weekend left most market participants (as I see it) feeling
more comfortable about the prospect of Fed action in September. I
don't think the rumblings from the GOP convention about Bernanke
not being extended an invitation to stay under a Romney
administration will serve to keep the
independent
Federal Reserve from acting in favor of markets and the economy in
September. If I was told I would lose my job under certain
circumstances, I'm not sure political perception would matter any
longer in my decision making. Bernanke has all the more reason to
act now in September.
The latest economic data reported yesterday, showing the
ISM Manufacturing Index
contracted deeper into the red, only demands further action from
those who can so flail. The Dow Jones Industrials took a hit on the
economic news, but would find support with central bank action as
depicted here. The Dow Jones Industrial Average ETF (
DIA
) is higher this morning, after a rough time of it yesterday, and
that is likely a sign of what's to come over the forward few weeks.
Hard hit industrial stocks like Caterpillar (
CAT
), General Electric (
GE
) and Deere (
DE
), which fell yesterday, are strongly higher today,I believe, on
this prospect. So, while the market is lazily returning to its
regular speed, you might have an opportunity to set
short short-term
long bets today. I qualify the buy recommendation to the short
short-term, because I see economic results only deteriorating after
the central banks act.
Disclosure:
I have no positions in any stocks mentioned, and no plans to
initiate any positions within the next 72 hours. I wrote this
article myself, and it expresses my own opinions. I am not
receiving compensation for it. I have no business relationship with
any company whose stock is mentioned in this article.
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