Hopes for Fed action kept the summer rally going, even though those hopes kept getting kicked down the road to perhaps the next FOMC meeting, or Ben Bernanke’s next speech, or the ECB’s next meeting.
The hopes that were very high that Bernanke’s speech tomorrow will signal QE3 is on the launch pad have faded considerably with the better economic reports of recent weeks. And the ECB action that a month ago was expected immediately is still being discussed in Europe.
That has had the rally paused since August 17 when the S&P reached 1,415 again, fully recovered from the April-June correction. But only paused.
No real concern. It remains within 1% of that high, just paused as hopes remain high that even if Bernanke says little tomorrow, the FOMC meeting next month could still vote for further stimulus. And if not, there’s still the promise from the ECB that it will do whatever it takes ‘within its mandate’ to save the euro.
So the rally remains in place, no break-down, just a pause waiting for someone to come through on promises to come to the rescue.
Markets outside the U.S. have not been quite as confident that all will be fine if only someone provides another round of QE3 type action. In fact they haven’t shared the U.S. market’s confidence since the peak before last summer’s correction.
But they have also only been paused since mid-month in their June rally.
Negative divergence persists.
Technicians get nervous when the Dow Industrials and Dow Transportation Avg are in a negative divergence. And that has been the situation since the June low.
The Dow Industrials (DJIA) have been in a persistent rally that carried it back to its March high.
But the DJ Transportation Avg. has continued in its pattern of lower highs since March even including its rally off the June low.
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To read my weekend newspaper column click here: Vacationing Officials Return And So Do Uncertainties! August 24, 2012.
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About The Author
Sy Harding publishes the financial website www.StreetSmartReport.com and a free daily Internet blog at www.SyHardingblog.com. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!