Stocks rip higher again on the back of more rumours of monetary easing, Aussie fails

October 22, 2014

Buy the dip ain’t dead as we are seeing again in markets at the moment and as NYSE Floor Governor Rich Barry somewhat cheekily wrote and BIUS reported overnight.

Barry is almost tempting fate when he says

We knew it was just a matter of time before our ‘buy-the-dipper’ friends came back into the market. At last look, the S&P 500 is up 113 points from its Wednesday ‘panic’ lows, which equates to a 6.2% up-move in just four trading sessions. Expanding on this point a little further, over the last nine trading sessions, we have seen the S&P 500 index trade from 1966 on October 9th, down to 1820 on October 15th, (minus 146 points, or -7.4% in five sessions); immediately before the ensuing 6.2% rise over the last four days. Does anyone else feel like they just got off a roller-coaster??

Yep – rollercoaster indeed but a but cheeky or is it cynical? Hard to tell

As readers know my sense is that the key to the recovery has been the changed perceptions about growth and interest rates. Fed Chair Yellen allowed a leak to say she still though growth was going to be okay and then it became clear via more than one Fed President that rates are likely to be on hold for some time in then US and BoE chief economist Andrew Haldane’s suggestion of a similar outlook for the UK and Bank of England. Last night we had fresh rumours that the ECB would buy corporate bonds. It speaks of a market addicted to free money but that’s the market we face and last night forecasts of the S&P 500 well above 2000 by years end started to surface once more.

Play the market in front of you is an old trading adage and it seems that market wants to buy the dip.

So at the close the Dow was up 215 points or 1.31% to 16,615. The Nasdaq qas on a tear up 2.38% to 4,419 and the S&P 500 surged another 37 points – yes 37 – for a gain of 1.94% to 1,941. 1957 seems the key topside level for S&P futures.

In Europe stocks were even more ebullient with the FTSE up 1.67% to 6,372, the DAX up 1.94% to 8,887 and the CAC up 2.25%. Suggesting that last week’s fear is washing out – for the oment at least- stocks in MIlan and Madrid rose 2.79% and 2.39% respectively and their bonds fell 6 and 2 basis points highlighting the risk on meme.

Locally the recovery continues as well with the SPI 200 December futures contract up an amazing 55 points overnight to 5,365 signalling a strong start in trade today. Iron ore futures down 90 cents will take some of the gloss off but realistically if the world is buying stocks then the local market should do well too.

Whether it is the S&P 500 or the SPI futures this rally has been textbook using my system and may yet have legs.

Likewise Asian weakness yesterday should give way to strength today. Yesterday’s Chinese GDP print of 7.3% wasn’t too bad and slightly better than the market expected but Shanghai fell 0.71% in the end and the Nikkei dropped 2% after the head of the Pension Fund which was supposed to be changing its asset allocation said yesterday he didn’t know anything about the rumour. The Nikkei ended down 307 points to 14,804.

On currency markets the Aussie has been unable to break up through the little downtrend line at the top of the wedge and it is back at 0.8781 this morning.

Euro is lower at 1.2715 with one of the worlds best known, and well performed, hedge fund managers David Tepper saying the Euro is headed lower. USDJPY is back at 107 after printing below 106.30 at one stage yesterday while GBP is at 1.6109.

On commodities Newcastle coal for December delivery rose 50 cents a tonne to $64.55. Crude was largely unchanged at $82.81, gold is at $1,248 and copper is back above $3 a pound settling at $3.02. On the Ags wheat rose 1.13%, corn was 2% higher and soybeans an amazing 4% higher.

On the data front the release of Q3 CPI in Australia is the big release locally. Japanese trade data will be eyed during Asia also but then the focus becomes the Boe minutes and rate cut details. US CPI tonight will be huge for expectations about the pace of Fed tightening while in Canada the BoC has a meeting and announcement.

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