NOTE: Every week I write a Client Note for my clients. For a limited time, I am allowing non-clients to sign up and receive the Client Note. You can sign up at the top right hand corner of the website. I will also be posting the notes on my blog with a 24-48 hour delay from time to time. Here is this week’s.
Originally sent Monday November 22, 1pm PST
Can the market breakout through the top of the range and resume the bull market that began in March 2009? Or have Republican gains in the coming midterm election as well as QE2 from the Fed already been discounted into stock prices meaning that the rally has about run its course?
Everything is pointing towards next Tuesday’s election and next Wednesday’s Fed meeting. The market reaction to those two events will tell us what we want to know.
After surging to two-year highs a little more than two weeks ago, financial markets have had an important correction. Treasury prices have fallen – causing yields to rise – along with stock prices, contrary to the Fed’s objectives in initiating QE2. Both had run up into the Fed decision on November 3, but the reaction has been a classic case of selling the news.
There have been a number of catalysts: Cisco’s (CSCO) disappointing forecast, troubles in Ireland, and now fears about a widespread insider trading investigation (“U.S. In Vast Insider Trading Probe”
, The Wall Street Journal
, November 20, A1).
Regardless of the causes, the rally was snuffed out at the April highs creating a double top. Volume picked up both when the market made nominal two-year highs and during the ensuing correction.
That means 1220-1225 on the S&P now represents stiff resistance. If the S&P couldn’t break through that level in April or November, what would cause it to in 2011?
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