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.