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
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
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