The Fed Gave You Another Reason To Buy Stocks
The
market blasted higher yesterday and confirmed the
break out past 1335 from earlier in the week. Yesterday’s move came after
Ben Bernanke once again announced low interest rates for an extended
period. Additionally, he said that it is unlikely interest rates are
raised for at minimum another three Fed meetings. Since the Fed meets
about every month and a half, rate will stay at zero through this
Summer.
Economic conditions have deteriorated around the world, even today
Japan lowered its forecasts and U.S. GDP slowed to 1.8% annualized from
3.1% in the fourth quarter. But corporate profits are at all time
highs.
Additionally, the dollar has taken out last year’s low and looks
ready to challenge its lows of 2008 and likely go lower. The $75 area was
an important support level to hold and the dollar could not do it with a
senseless government and a clueless Ben Bernanke. Until $75.12 is taken
back, I really cannot be a long term bull for the dollar. Europe and
England will announce interest rate plans next week, which could turn out
to be two very important events.
Of
course, the traders loved hearing Ben Bernanke declare more free money
and they jacked the indices another 1% on top of Tuesday’s similar
increase. Volume was not heavy, but it was higher yesterday than it’s
been for most of the month.
I was on a radio talk show yesterday morning, and before the host
came on air, I had the opportunity to speak with another trader who
shared a spot with me during the hour segment. As he and I got to talking
before airtime I asked him what he thought of the move over the past
three weeks. Although he didn’t have much of an opinion on market
direction, he mentioned that he asked his good friend on the floor of the
NYSE the same question; his good friend’s response was that a
balloon rises faster when the air is
thin.
What this mystery floor trader is really saying is that
there is no volume and there is no
one selling. The combination of those two factors makes it
very easy for a small amount of buyers to jack the market higher. And
that’s what has me leery of the rally. I think it is due to
non-institutional money.
My target for SPX on this break out past 1335 remains 1377. Maybe
more volume will roll in over the next week, and I will be more
enthusiastic about this most recent ascent, but until that happens I
think the market is setting itself up for another spring like last
year.
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