9:00am (EST)
“We factored in a possible 1%-2% move for the market on Friday based on what Bernanke did or didn’t say and at one-point the indexes were up nearly 1.5%. There was plenty of volatility at the open and once the fireworks began but the trend was higher after Big Ben said the Fed WILL print more money, we mean, provide more stimulus.
Here is the money sentence that gave the bulls the green light:
“Taking due account to the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.” (END)
The knee jerk reaction was expected but Big Ben basically checked the pot back to Mario Draghi which gave him two more weeks to see what Europe does. The Fed and its members should be mum until they meet again on September 12 as there is technically a week-long blackout period ahead of the meeting.
Draghi has cried wolf more times than we care to count and he will take center stage again on Thursday (September 6) as the European Central Bank (ECB) meets. The market is expecting the ECB to announce some kind of bond-buying program but there is, believe it or not, a chance they delay an announcement until next week on September 12 which is when Germany is expected to vote on the European Stability Mechanism (ESM).
To review, the ESM provides “financial assistance”, or bailouts, to the members of the eurozone who need financial aid. We have mentioned all summer long Germany has grown tired of flipping the bills for the struggling counties like Greece and Spain and is expected to vote on the treaties that were established for the fund. Back in July, a German court looked into the complaints of the constitutionality of the ESM and this vote could be crucial in if the euro gets saved or not. If Germany does give the okay for the ESM to establish a permanent bailout fund, the markets should rally, but again, this news isn’t expected until next week although there has been a leak. Germany’s Finance Minister, Wolfgang Schaeuble, has gone on record saying that he does not see the Constitutional Court blocking the established treaties so Draghi could be safe if he gives the market something to nibble on.
The Dow Transportation Average showed signs of life on Friday and will need to break out of its downtrend if the bulls expect to test new highs. The index trended lower all summer before the August bounce and pullback which is in danger of falling below the uptrend line. A close below 4,950 on the Dow Transports could spell lights out for the bulls. A close above 5,050 would be bullish.
Commodities also made a nice move and we mentioned midweek gold and silver were on the verge of breaking out:
This week has the potential to be bullish as the charts favor the bulls. The Tuesday after Labor Day is usually bullish and it is the first trading day of the month. With the suit-and-ties coming off their August vacations, they will be anxious, or forced, to buy stocks if the market gets off to a strong start and the rally resumes.
There are several U.S. economic reports slated for the week with Friday’s Nonfarm Payroll report and Unemployment numbers which could help or hinder any momentum. This week’s headlines will likely get the market back at resistance or short-term support. This means the indexes would again be at crucial levels heading into the following week which will also be packed with Tech news.” (from 9/3/2012 Weekly Wrap/ Monday Morning Outlook)…
The bulls made a run at new highs after the European Central Bank (ECB) promised unlimited QE (Quantitative Easing) by targeting bonds of the struggling nations in the eurozone. Mario Draghi, president of the ECB, delivered exactly what the markets around the world wanted to here.
Friday’s unemployment news was a disaster but the market inched higher as Wall Street now expects The Bernanke to spring into action as soon as this week. The bears are left with few options as they try to hold down the last layer of resistance and this week will be crucial with Germany voting on the constitutionality of the bailouts and the FOMC Rate Decision on tap. (continued…)
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