Stocks surge to new highs stalling the US dollars improving tone

May 13, 2014

Gee whiz – where did last night price action come from?

It seems the annual sell in may and go away meme is off to a bad start in 2014 with both the Dow and the S&P 500 making new highs overnight

Apparently there were broker upgrades in both the banking and mining sectors but even the Nasdaq moved higher – sharply so – which suggests it was more than just this.  At the Close the Dow finished up 112 points or 0.67% 16,695, the Nasdaq ripped higher up 1.77% to 4,144 and the S&P 500 rose 0.99% to 1,897 just shy of the next big level at 1,900.

It is a strange markets clearly still driven by cash not fundamentals as all manner of pundits suggest that the market is overvalued. However not Morgan Stanley’s Joachim Fels (a strategist/economist I have followed for years now) who makes an argument for being bullish.

It’s worth a read and it’s still all about free money and low rates.

The weekly chart of the S&P 500 futures show the strength of the uptrend and the monthlies show the force is even stronger in that trend. Clearly I am on the record as saying that these moves are well outside the valuation range and while I’m not short I am 100% cash at the moment – and wrong.

I can’t buy it here but the trend remains strong only a break below 1845/50 would threaten at the moment.

In Europe shares were also higher after strong profits from Italian companies and the ebullient tone from Wall Street. At the Close the FTSE 100 rose 0.55% to 6,852, the DAX rose 1.26% to 9,702 while in Paris the CAC was 0.37% to 4,494. Milan and Madrid were relatively subdued rising just 0.49% and 0.76% respectively.

Of course the net result on the Australian market has been positive in overnight futures trade on the ASX with the June SPI 200 contract up 30 points to 5,466 bid and a bias to head higher in today’s trade regardless of the budget.

On currency markets Euro consolidated Friday’s fall and sits at 1.3758 this morning, the Pound rallied above 1.69 at one point but couldn’t hold there and sits at 1.6866 while USDJPY is back above 102 at 102.11 this morning. The Aussie is beamed after a run at 0.9385 it is back basically unchanged on the day at 0.9360.

Euro didn’t do anything over the past 24 hours but last night Investment bank UBS said they expect Euro to fall 4 big figures in the next few weeks.

Of course I’m talking my book because I’m short but I do agree with them that Euro is vulnerable.

In commodity land Nymex Crude is up 0.63% to 100.62 Bbl, Gold recovered from early Asian selling yesterday to rally $8.60 oz to $1,295 this morning. Copper fairly surged up 6 cents to $3.16 or 1.92% – that has to help some miners on the ASX this morning – while the Ags continue to love volatility with corn wheat and soybeans all down more than 1%.

Today we get Australian home prices, and investment lending before the budget tonight – which doesn’t usually move markets and then German WPI and ZEW Economic survey tonight together with Italian CPI. In the US retail sales will be important as will Import and Export prices along with business inventories. Today Asian markets will be watching Chinese retail sales and industrial production.

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