Markets Confirm Further Upside

Last week I wrote twice that the markets were going to go up further despite weaker than expected economic numbers and worries about high unemployment. I reasoned that earnings were just too good so far, with the majority of companies beating expectations and most expected to beat for the rest of earnings season. This set the stage for the uptrend from July 1st lows to continue. I wrote that the Dow needed to break 11600 with confidence and today it opened above that resistance level setting the stage for a continued rally to resistance of 11,900 and then a heavy bit at the 11,200 level.

It should be a good month for stocks as the global economy is still alive and well and until China and India both show signs of significantly slowing to paces under 6% growth the money will follow the earnings. Most of the companies that are beating are beating on strong international sales so with the global nature of our companies today you need to have an international outlook as opposed to just looking at fundamentals on just home soil.

What looks more certain to me than deflation, is poor to flat economic growth in the face of rising prices, which is what will ultimately happen if the developed world economies don't resume a reasonable pace of growth again soon.

One problem the US has is that it needs to encourage spending on home soil as well get credit moving through the system again. The system was designed to run a certain way and now that they are changing it all of a sudden to run a different way the the economy can't take it. It needs the spending to run, it needs it until it can encourage its industry to expand. It needs that spending to bridge the gap until industry can come and reinvest in the US economy.

I think you can have poor economic conditions and positive earnings in this day in age. Its very easy to see how. A lot of people are talking that the markets have to follow US economic conditions, I don't think so and for the first time in history you will see a disconnect between the US economy and the US stock markets because of the international nature of most major companies.

I think the markets push to at least 11,200 but in all probability may go as high as 11,500 - 12,000 where possibly in the fall a further slow down in China as well as further negative revisions of economic data could combine to take us lower.

Happy Trading :)

Markets Look to Rebound this Week

After a very strong selling push to below 10,000 on the Dow the markets look to be extremely oversold for the short term and look like they could rebound next week. One key indicator for me that next week should be a good trading week to the upside is that the RSI made a strong move and bounced off 30 with some force. It bounced off 30 two weeks ago as well and tested the 50MA before moving back down.

I am not quite in the double dip camp yet, but it looks like the markets have topped out in the end of April. Any push higher should be traded and sold in my opinion and worries about Europe are far from over. The aid package for the EU should help alleviate short term worries and we may see a significant bounce in the EUR and GBP while markets rebound. Some key areas of resistance in the Euro would be around 1.2700 and 1.3000 where it initially started to break down and could technically fill that gap up before another leg down.

I highly doubt that Europe's woes are over with Greece and it will probably take most of the year to sort out what is going to happen in Europe and its economy. The severity of Europe's may have a significant impact on China's economy as the EU is a major customer of China's exports. With Geithner in Asia stressing that China needs to allow the Yuan to rise to allow China to develop its internal consumer economy which is growing, to me is a signal that China has to change its export driven economy and can no longer be rely solely on exports. If they remain this way they are subject to global economic conditions and can not be a leader in consumerism like they should be with a population of over 1 billion. With China still unwilling to unpeg their currency from the USD it still shows their huge reliance on their export industry as it would almost certainly lead a significant rise in the Yuan in the current global conditions.

Another, interesting tidbit was the US doubling their exports which is what I have been blogging about on Stockhouse for the last year. That US needed to reinvent itself as an economy and no longer rely on the consumer and a strong dollar to outsource because the American consumer is too in debt to keep spending at this rate and couldn't pull the economy out. They have deflated their dollar which had a double positive effect of reinvigorating their export industry and makes their debt much cheaper to pay back. So far so good for the US plan for recovery without the American consumer. But if this strategy keeps up, US unemployment will heat recover and when full-time employment numbers come back, so will the rest of the economy.

With Geihtner talking up the global economy this weekend and as well as the EU aid package, attitudes seem to be more positive going forward. At least for the short term. One disconcerting thing that could be red herring for now is the German Chancellor and the British Prime Minister not seeing eye to eye. But with expected visits from Giethner this week. Political rhetoric coming out of those 2 powerhouse EU nations may change and be a little more united.

Gotta love the gold stocks, in a major bull market and had such a nice selloff can't help but buy those that retreated to their 50MA's.

My top 3 juniors are EAS.V since $2, CSI.TO since $4.50, and VEN.TO since $5. I would buy all 3 one weakness.

Happy Investing