Wednesday, December 28, 2011

what's going on




Here are four daily bar charts which together paint a clear picture of the economic forces at work in the markets over the past few weeks and for the coming few months.

The European Central Bank has decided to bolster the liquidity of the EU banking system by buying sovereign bonds from private banks for euros and then putting them on the ECB's own balance sheet. This policy should send the euro-currency down against the dollar, and indeed that is what we see in the euro-currency daily chart (second from top).

This ECB policy is designed to avert a banking crisis which would tank the entire EU economy. European stock markets right now think the ECB will attain this policy goal as you can see from the top chart of the French CAC stock market index - while the Euro has tanked the CAC has stabilized and even shows a series of higher lows which bodes well for the immediate future.

The US stock market has been worrying about fallout from Europe putting pressure on US banks and even threatening another banking crisis in the US. But as you can see in the bottom chart of the S&P bank stock index, US bank stocks are actually outperforming the S&P itself - this index is above not only its 200 day moving average (red line) but also above its October 27 high (green dash line). The market seems to think that better times are ahead for US banks.

Finally note the second chart up from the bottom which shows the performance of the Philadelphia stock exchange housing stock index. Like the S&P bank stock index it is trading above its October 27 top as well as above its 200 day moving average. This suggests that a recovery in residential housing construction is underway in the US, a positive sign for the US economy.

Taken together these four charts all suggest that the thick blanket of gloom which currently envelopes the US stock market is about to lift. Better times and higher prices lie ahead.

6 comments:

Graph1159 said...

I'm bullish for 2012 and at least most of 2013. I expect all time highs in the S&P and DJIA to be attained during that time period. Beyond 2013, if the U.S. economy remains bad or Europe continues to deteriorate, the bull market from March 2009 could be Wave D of a broadening triangle that began in 2000. If that were to happen, the U.S. stock market would fall below its March 2009 lows later in this decade.
Or, if the macroeconomic environment improves in the U.S. and Europe at least stabilizes, the U.S. stock market may proceed into a new 8-10 year secular bull market. I don't know which long term scenario is more likely right now. But either way, the next two years should be bullish.

dave said...

The large Jupiter Saturn configuration near
OPEX in January should be a hurdle for the next 3 weeks or so.

Hurst 10 and 20 week lows seem to be aligning with this astrocycle.

molokai_man said...

It's impossible for me to see how anyone can be bullish for 2012, or 2013 for that matter, unless it starts with the assumption that governments will continue to paper over the spending, debt and solvency issues at the core of both government and banking. What I fear most is that the bulls are right (which I'm ambivalent to investment wise, I trade with the market), and that we are subsequently being setup for a long term decline never seen before in our lifetimes...there is absolutely no way to get around the basic math.

Win said...

Carl,

Next couple of weeks will probably be down, but for 2012 you are correct.

marcusbalbus said...

you change your tune a lot. go back and read your posts over the last 4 months. are you writing for attention only?

ex VRWC said...

Translation:

The market will be up because the market thinks it will be up. The market will be up because the market thinks the ECB will provide unlimited liquidity. A recovery in housing is underway because the market thinks it is.