Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
The last week of the month has already gotten off to a roaring start in futures as Bernanke is out this morning with a speech saying the labor market remains poor, which the market is translating to more easing. I am unclear why the market ever has gone off the more easing bandwagon, but they seem to be reassured today than Ben will continue full steam ahead and of course markets love easy money.
- Improvement in the nation’s labor market since last fall may only be a reversal of large layoffs that hit during the recession, and further improvement may depend on faster economic growth, Federal Reserve Chairman Ben Bernanke said Monday. “We cannot yet be sure that the recent pace of improvement in the labor market will be sustained,” said Bernanke in a speech to the National Association of Business Economics.
- The top U.S. central banker said that weak demand is the primary factor behind the weak labor market, not structural issues like lack of employment skills in the workforce. Against this backdrop, the Fed’s current ultra-low interest rate policy can help, he said.
And with that S&P futures have bumped up to the 1404 resistance level which was hit not too long ago (this is a resistance on the weekly chart from 2008). For those technically inclined, we have a bit of a “bull flag” built on the index chart with last week’s (rare) decline.
To the downside are Friday’s lows, and the 20 day moving average below it. Other than that shakeout early in the month, the major indexes remain above the 20 day moving average so until that changes (at the minimum) it is difficult to change to a bear costume.
The DJIA, and NASDAQ have similar setups, with the exception being the Russell 2000 which had a “breakout fakeout” last Tuesday from a huge sideways range, only to retrace. This has been the consistent laggard (in a relative sense) of the past 2 months, of the major indexes but was ‘jiggy with it’ Friday, outperforming by a large margin.
In economic news, last week was not a great one as PMI reports from Europe and China were not very good, but the reaction to them was relatively muted. As long as their is a central banker put there appears to be an unrelenting bid under the market (for now). Bad news = relatively good news (at worst) for now. Spanish and Italian debt yields did perk up a bit as well.
We have a few reports people pay attention to this week but next week is always the big one of the month with the labor data, ISMs, official Chinese PMIs, etc. For this week, pending home sales today at 10 AM, consumer confidence tomorrow, durable goods Wednesday, personal income & outlays Friday along with Chicago PMI, and another consumer confidence measure.
With earnings season set to begin in a few weeks this might be a week of some potential pre-warnings.
Other than that one just has to continue to watch the technical levels, and see if bad news continues to be absorbed by markets as “fine” because it simply means more easing. If Ben unleashes new QE on the market in June (as I expect), 2012 will parallel 2009 in being a year of constant easing without a break. In 2010, 2011 there were breaks from easy money and the market got punched in the gut both times. But really is it going to be as simple as “that”?
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