Epic market breakout under way
After weeks of ennui, the bulls push stocks, precious metals and other risky assets higher in a big way. The gains should continue.
The summer doldrums have been worse than usual this year as traders await decisions on new stimulus measures out of Europe, China and the United States. Until then, they had little excitement with mixed economic data, light news flow and dismal trading volumes. In fact, just 497 million shares traded on the NYSE primary market Wednesday, pulling its 10-day moving average down to levels not seen since 1998.
People are just checking out of the stock market, which is a positive from a contrarian perspective. Combine that with macroeconomic momentum, attractive valuations, cyclical issues that are cheap versus defensives, and the specter of fresh stimulus, and I'd say these folks are making the wrong move.
Thursday, that hunch was proved right as stocks and other risky assets blasted out of one of the tightest trading ranges in market history. Now the stage is set for additional gains in the weeks to come.
In Europe, the recalcitrant Germans are softening their resistance pro-growth stimulus measures somewhat. Stocks jumped just after 11 Thursday morning after German Chancellor Angela Merkel voiced support for recent comments out of the European Central Bank that it would do whatever was necessary to protect the Eurozone. She also stressed that time is of the essence in finding a solution to the crisis.
The fundamental outlook is also improving. You can see this in the chart of the Citigroup Economic Surprise Index, shown above, which is improving as the data no longer surprises to the downside. Improvements in this measure are closely associated with rebounds in stock market performance.
While the data is improving, it's still mixed with lower inflation data bolstering the case for fresh Federal Reserve stimulus (Fed chair Ben Bernanke hates whiffs of deflation), while July industrial production crept higher and NAHB builder confidence surged to its best level since early 2007.
There was also a widely read Goldman Sachs report on Wednesday that suggested the Fed may not take action to bolster growth until late 2012 or early 2013 -- ostensibly in reaction to some recent firming of the economic data (as highlighted in last night's letter).
I think it's a win-win: Either the data cools a little and the Fed acts in September, or the economy revs up on its own. And besides, the Fed isn't the only central bank considering action.
Indeed, Wednesday night Chinese premier Wen announced that easing inflation allows room for additional monetary policy easing out of the People's Bank of China in response to downward pressure on the economy.
Either way, it's good for risky assets. Despite the flat broad market performance, there are signs savvy traders are buying into this theory. Cyclical, economically sensitive stocks are firming. Money is pouring out of haven trades like Treasury bonds and the Japanese yen.
And now, finally, stocks are taking flight from their multiweek perch just above the important 1,400 level on the S&P 500.
I'm using the surge to book some profits in my Edge Letter Sample Portfolio. I'm closing Teekay (TK) and Amkor Technology (AMKR) for gains of around 5% since adding them in late July. To take advantage of outflows from haven assets, I'm adding a position in the ProShares UltraShort Yen (YCS).
I am also adding International Business Machines (IBM) on a powerful move above $200 a share.
Disclosure: Anthony has recommended YCS to his newsletter subscribers.
Check out Anthony's investment advisory service The Edge. A two-week free trial has been extended to MSN Money readers. Click here to sign up. Contact Anthony at firstname.lastname@example.org and follow him on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
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Epic...the Great Mirhaydari has spoken! Watch the pretty graphs..follow the lines...the charts never lie!
The stock market has become nothing more than a den of thieves.
Epic market breakout under way??? Wow, Anthony...hit the "Happy Hour' at the bar much? Given the heavy debt that the US and Europe are experiencing, the corruption on Wall Street, our high unemployment, and the devaluation of our currency - there's no valid reason why a breakout would take place. Back up such ridiculous claims with hard facts, not speculation and manipulated figures!
I guess it depends on your personal definition of EPIC....I for one ain't buying it from this guy.
Low inflation data? What’s the source of that data?
The retail cost of Food, Gas, Clothing, Computers, Automobiles, Health Care, College Tuition (omg!), is up, way up.
Want to start a disaster, spread some Fed fuel (QE3) on that low inflation notion.
One Israeli bomb in Iran, one Iranian cruise missile launched across the Straights of Hormuz, spike in interest rates in one of the PIIGS, major terrorist attack etc. etc.
And you can watch your nest egg disappear overnight.
One up day signals an epic event?
I guess that means two up days in a row would signal either another Big Bang or the collapse of the universe into one gigantic black hole.
"Investors remain so addicted to the temporary high of monetary intervention that they continue to ignore very real downturn in global economic indicators, to an extent that we have not seen since the 2007-2009 recession. This is particularly evident in the deterioration of new orders and order backlogs, which are short-leading indicators of production, which in turn is a short-leading indicator of employment.
.... Wall Street is scared to death of being out of the market when the perceived salvation of QE3 is announced, and at the same time is increasingly encouraged by negative economic data in the belief that this will accelerate delivery. In short, investors are practically begging to be shot, mauled by dogs, and diced by a Veg-O-Matic so they can get their next fix of pain-killers."
"The Fed is not doing anymore QE. It's not working and is fueling rampart inflation. Contrary to what most believe, we need deflation in raw material and commodities. Remove the games, manipulation, and sponsored false trading, and the market will at sometime reflect the reality of the economy, not the false support that the financial houses implement to cover their positions."
I agree. We also need to ban REITs (Real Estate Investment Trusts) and starting to hyper-tax vacant property that could be leased but is holding out for price-fixing instead. Fill the Main Streets with small businesses and get rid of big global oligarchies. We've lost everything America stood for just so wealthy inheritors can play rich and powerful.
Looks like complete denial to the reality thats going on in US and around us in the world. Our military can not even buy paper and pens cause they are out of funds, government has to borrow over 100bln monthly just to stay afloat and people continue to proclaim fake market breakouts.
You even not trying to understand why volumes are so low, cause smart people are on sidelines ready to short. Pain is around the corner for suckers buying into this.
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