“Here at home the Federal Reserve did nothing and disappointed the suit-and-ties who were looking for a QE3 sugar fix. We repeatedly said the Fed wouldn’t act but the zombies will be meeting again at the end of the month in Jackson Hole, Wyoming.
There is a strong feeling that some type of stimulus package could come in September and if there is, Fed Chairman Ben Bernanke, could use the conference as his stage. He did in 2010 when he announced a QE (quantitative easing) program which lead to a 10% September rally for the S&P. The index closed at 1,049 on the last day of August 2010 and reached a peak of 1,157 before closing at 1,141 on September 30, 2010.
Of course, the belief was the Fed would have acted this week if Nonfarm payrolls would have been a disaster but the bottom line is they won’t act until the fuse is about to blow. This means the ball will be in Europe’s court until they drop it and the market will still be subject to headline risk.
The key to everything going smoothly for the bulls is Germany which has opposed much of the shenanigans from the weaker countries in the eurozone and seems to be getting tired of the bailouts. Spain could ask for one this week. If Germany goes along with the ECB’s “new plan” then we would expect the market to rally but again, this could take a few weeks.
Economic news will be light this week and 2Q earnings season is winding down. Volume has been super low and August is typically a slow and weak month for Wall Street traders as they get the last of their summer fun in.
The charts are showing mixed signals with the small-caps lacking while Tech and the big-caps are pushing possible new highs. If we get a tenth-straight lower Monday, it would be good news for the bears.
If Monday turns out to be bullish, along with the upcoming Friday, the market could test its highs for the year with a possible breakout on deck. A lower Monday and a negative Friday could mean the indexes have topped and we stay in the trading range with pressure to the downside. However, August election years are tricky as they can sometimes be VERY bullish so both scenarios are possible.” (from 8/5/2012 Weekly Wrap/ Monday Morning Outlook)…
The bulls were finally able to snap the bears 9-straight Monday win streak and were able to push resistance throughout the week. On Friday, the major indexes closed above another bullish level and could challenge their 52-week highs on continued momentum. The bears were happy to hold the top of the current 3-month trading range but they are losing their bite as the S&P 500 closed higher for the fifth consecutive week.