I was also disappointed with the stock market’s reaction as it sold off following the announcement in the morning. Nevertheless, my Inflation-Deflation Timer Model relocated to an “asset inflation” reading from “neutral” early last week indicating a risk-on environment. On the weekend After researching the charts, I would cautiously agree. While I remain cautiously bullish, I am also closely watching the way the market reacts to several key events to observe how the market reacts.
First of all, let’s focus on the bull case. While artists were watching the SPX to find out if it would get over resistance, I am viewing signals of technical breakouts indicating a Santa Claus rally may be on the way. By contrast, the broader NYSE Composite has staged a minor upside breakout already, though there continues to be overhead, technical resistance at the 2012 highs.
Similarly, the Dow (not shown) has also staged an upside breakout – another bullish sign. The SPY (shares) to TLT (default-free long Treasury bonds) percentages, which really is a way of measuring the risk-on/risk-off trade, also staged an upside breakout. Cyclical stocks continue steadily to behave well, as the ratio of the Morgan Stanley Cyclical Index (CYC) to the market remains in a relative uptrend.
Most other major stock indices throughout the world also got bullish technicals. Across the Pacific, in Hong Kong, the Hang Seng Index has staged an upside breakout in the context of the uptrend. The outlook for China can be referred to as cautiously positive best. The Shanghai Composite has been rallying in the last week to check downtrend resistance.
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- Should I cancel my score if I am not too happy with the way the test is heading
If the index can overcome the downtrend range, it would symbolize another technical win for the bulls. Nearby in South Korea, where China is its largest trading partner, the specialized design of the KOSPI can be termed cautiously optimistic likewise. KOSPI has been rallying since mid-November and at this rate will be encountering technical resistance – much like the pattern of US equities like the SPX.
Over in Europe, the STOXX 600 has staged an upside breakout. While other indices, like the FTSE 100 and the Euro STOXX 50, are examining their level of resistance levels still, this development must be regarded as bullish. Alternatively, the news headlines of Mario Monti’s resignation and Silvio Berlusconi seeking to go back to power may unsettle the markets.
One of the main element upcoming tests of market psychology will be how Mr. Market reacts. Has the activities of the ECB to eliminate tail risk cause the marketplaces to shrug this off generally? Or will this news to result in a major selloff? The work survey offered me no reason to change my baseline opinion that the US economy continues to grow at a slow, regular pace regardless of the quarterly fluctuations we see in GDP growth.