September Strength Should Continue

Those of you familiar with the game of ice hockey will understand what I mean when I write, “it’s time to check the goalposts”. A good netminder will, with his stick, periodically bang the goalposts behind him in an effort to make sure all the angles are covered. Well, the same theory applies to those seeking to invest successfully. The markets have experienced a nice run in the 1st half of September and it’s now time to check the proverbial goalposts.

The market equivalent for a piece of iron painted red to which I refer can best be described as the relationship between the carry trade (expressed by the AUD/JPY), the NYSE Composite and the credit markets. We used these three factors to check angles back in April with our successful ‘Stalking the Bear’ series. And then again in July with our correct ‘change in trend may be in the offing’ comment. So, without further delay let’s check the posts….

Post 1: Below you will see a weekly chart of the NYSE Composite. This is an update to the chart that first appeared on this blog in the post ‘Stock Market Strategy: Irresistible Force Meets Immovable Object’. Please note that the red ‘immovable object’ of a downtrend has been breached and the black ‘irresistible force’ of an uptrend remains intact. So, for the moment, intervention and liquidity creation trumps economic reality. Score one for the bullish camp and look for a continuation of the September strength…..

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European Woes Continue

Coming back from the Labor Day holiday, US investors have been caught a bit off guard by the reversal of sentiment toward Europe. The euro had rallied in the immediate aftermath of the stronger than expected US jobs data ostensibly on a greater appetite for risk. There was some follow through early yesterday and then only lower.Anecdotal stories include empty shops in Greece and concerns over the lack of government's in Belgium and the Netherlands. French unions are on strike today in Paris. Irish bank solvency has re-emerged as a key issue. Today a European bank took 60 mln dollars from the ECB's Fed swap line. The ECB noted that last one one bank--perhaps the same one as this week--took 40 mln dollars from the swap line at a rate as much as 4-times greater than LIBOR.

The euro high in the North American session has been $1.2772. Chart-based resistance looks to be in the $1.2800-20 area, the high from the European session. Hourly RSI's are over-extended and that leaves the euro caught between poor fundamentals/sentiment and near-term supportive technicals. Range trading is the most likely result near-term.

Disclosure: No positions

About the author: Marc Chandler

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