Are we being fooled? Probably. For how much longer?
With Europe in financial crisis one would think that tight credit should impact the financial markets negatively. For now the markets are pushing higher. What money is moving into it? Is it only a bounce so the funds and other big traders can get out at higher prices before the door closes again?
I don’t think it matters much what the European leaders decide now to patch up their system. It will be only a patch not a solution. The problem is too deep and complex to be solved by one financial agreement. Even if the flood gates won’t open the troubles will linger for long time.
It’s similar to our housing disaster. Not all homeowners went above their means. However even they are being pulled down by irresponsible ones. In Europe, not all countries were reckless promising citizens too much, beyond the countries’ means. However, now the responsible ones are being pulled down by the crisis which expands.
At best the economy will slow to near zero. True that people will still have money for basics, but not to purchase big ticket items. They will be still shopping for milk, bread and sweaters. They would even afford more sweaters! (Irony in markets like this, people won’t save for bigger purchases thus extra cash for small retail shopping).
Back to charts: SPY
Daily chart looks perky:
MACD expanding in a positive fashion, W%R very positive – watch for reversal (strong resistance around $126).
Weekly chart not too bad either:
One up-trending channel met the down-trending channel in the first week of October – temporary resolution was higher. Possible resistance is at around $130-$135, at the center line of the “fork”. MACD histogram is trying to get positive – potential for more upward movement.
Monthly (one week left to finalize the last candle) picture is negative with SPY stuck below SMA(10):
Notice that I am using only one SMA on the monthly chart. Closing above $130 would give a nice push to squeeze more shorts toward $135. MACD is undecided but in similar position to December 2007 when SPY was also below SMA(10).
Cheers from Europe,