The markets face numerous problems,
including still-elevated bond yields in Spain and Italy, slowing global
growth, and the media's latest obsession...the dreaded "fiscal
cliff". Yet, despite all that, stocks and commodities are flashing
bullish signals. Analysis
after the close on Thursday pointed to a possible rally in risk assets. The
market delivered on Friday with a 22 point gain in the S&P 500.
The quantitative easing watch part
III shifts back into the spotlight on Tuesday and Wednesday as Ben Bernanke
is scheduled to update Congress on the status of monetary policy. From Reuters:
present his semi-annual monetary policy report to Congress against a
background of lackluster growth at home and a festering sovereign debt crisis
in Europe that is increasingly preoccupying U.S. policymakers. A voting
member of the Federal Reserve's policy-setting body, Dennis Lockhart, said on
Friday he has edged closer to supporting another round of QE if the sluggish
economy can't improve. However another regional bank president reiterated
that he did not see any need for additional Fed easing.
The recent strength in stocks and commodities
can be attributed to, at least in part, the market's expectations for QE3.
The Vanguard Total Stock Market ETF (VTI) has established a bullish
upward-sloping trend channel (see below). If the market remains within the
channel, VTI could push toward 71.50 in the coming weeks. A similar move in
the S&P 500 would bring a possible visit to 1,396.
When Ireland bailed out its banks, it
put taxpayers on the hook for the equivalent of around 40% of its annual
gross domestic product. In that context, it is easy to understand why the
European Central Bank has adopted a new stance. From the Wall
Central Bank, in a sharp turnaround, advocated imposing losses on holders of
senior bonds issued by the most severely damaged Spanish savings banks--though
finance ministers have for now rejected the approach, according to people
familiar with discussions.
The video below covers bullish slants
in both traditional charts and DeMark exhaustion
counts. Trends, possible targets, support, and resistance are the primary
topics. You can find DeMark-related comments on the
S&P 500 ETF (SPY) beginning at the 00:51 mark. Other ETFs and their mark
in the video: foreign stocks (EFA) 2:58 DeMark,
Treasuries (TLT) 3:47 DeMark, euro (FXE) 5:51 DeMark, global stocks (VEU) 7:09, European financials
10:09, NYSE Composite 10:31, RSP 11:27, S&P 500 trends 12:07, VIX (VXX)
13:22, commodities (DBC) 14:38, gold (GLD) 16:15, silver (SLV) 16:40, SPY
Fibonacci 16:58, and the Dow (DIA) at the 17:46 mark of the video. DeMark charts and indicators are proprietary tools from
Market Studies, LLC.
Monday's weak retail sales numbers
will give the QE3 advocates some additional ammunition. Like employment,
retail sales have been weak for three straight months. The recent bullish
move off the lows in commodities (DBC) shows a market that is expecting the
Fed to begin dropping some QE3 hints soon. Copper (JJC) and crude oil (USO)
have also shown signs of life in recent weeks.
The bullish progress in the stock
market can clearly be seen below. VTI has made a series of higher lows (green
arrows) and higher highs (blue arrows), which defines an uptrend (see slope
of line B). The downward-sloping trendline, labeled
A, acted as resistance below the blue arrow on the left. Subsequently, VTI
broke above trendline A in a bullish manner. Last
week, trendline A acted as support for prices,
which increases the odds of the bullish trend remaining in place for a time.
The last bullish development is price has also exceeded and held above the
neckline (line C) of an inverted head-and-shoulders pattern.
In a May
26 article about Greece, we noted potentially bullish divergences in
numerous "risk-on" charts, making us open to a rally. Since then,
the S&P 500 has tacked on 90 points from the June 4 low. Our stance
remains unchanged; we respect the fundamentals problems, but will continue to
give the bulls the benefit of the doubt as long as the charts allow