Courtesy of John Nyaradi.
Janet Yellen goes to Congress and promises a bigger bubble in the Dow Jones Industrial Average
Janet Yellen made it very clear in her confirmation hearing last week that she intended to continue the current easy money policies in support of the economy, employment and the Dow Jones Industrial Average. (NYSEARCA:DIA) She claimed to not see any current asset bubbles, but then, that’s typical of bubbles which usually aren’t visible except in hindsight.
She also mentioned that the economy was performing well below potential, that she intended to support the recovery, sees no build of global financial risks, not much evidence of excessive risk taking in search for yield and that she’ll keep her eyes open for any asset bubbles.
As the old saying goes, “Good luck with that.”
But the market took her at her word and the Dow Jones Industrial Average (NYSEARCA:DIA) along with the SP500 (NYSEARCA:SPY) and Nasdaq:(NYSEARCA:QQQ) all advanced on Friday and for the week.
The SP500 (NYSEARCA:SPY) gained 1.6% for the week while the Dow Jones Industrial Average (NYSEARCA:DIA) climbed 1.3%.
On My Stock Market Radar
On a technical basis, the Dow Jones Industrial Average (NYSEARCA:DIA) has broken all short term resistance and now is pushing against extended resistance levels dating as far back as 1999.
Long term channel trend lines like this are significant, and so the next week’s and months will be critical for the long term health of the current bull market.
chart courtesy of StockCharts.com
A look at the broader NYSE paints the same picture, with the index up against long term resistance dating back to the 2007 highs.
chart courtesy of StockCharts.com
So one of the most powerful bull markets in history appears set to continue as Janet Yellen promises more easy money, however, she will have to overcome multi-year resistance levels in order to succeed.
Stock Market News You Can Really Use
Last week’s economic data largely supported the case for more easy money as the November Empire Index fell to -2.2, widely missing expectations and far below last month’s +1.5. October Industrial Production was also a disappointment, registering -0.1% compared to last month’s +0.7%. The National Federation of Independent Business sentiment gauge also dropped in October compared to the previous month’s reading.
Next week will bring a number of closely watched economic reports:
Monday: November Home Builders Index
Wednesday: October Retail Sales, October Consumer Price Index, October Existing Home Sales, FOMC meeting minutes
Thursday: weekly jobless claims, Markit Flash PMI, November Philadelphia Fed, October Leading Economic Indicators
Where Are We Now?
Dr. Yellen’s testimony essentially confirmed the failure of the Fed’s program thus far to bolster economic growth and employment to levels it considers to be satisfactory, and her fix is to do more of the same. Many analysts see her as being even more dovish than Dr. Bernanke, and so instead of a tapering of quantitative easing in 2014, we could see an expansion under the Yellen Fed, particularly as economic growth appears to be stalling.
Nevertheless, this could be good news for stock market bulls as easy money forces capital into equity markets in search for yield. Furthermore, panic buying appears to be setting in as many long time stock market bears are capitulating and calling for higher prices ahead. Newsletter writers are extremely bullish, and while the Dow Jones Industrial Average (NYSEARCA:DIA) and other major indexes could continue higher, excessive bullishness is typically a contrarian indicator.
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