Merkel Surrenders, On Markets Blast Higher (SwingTradeOnline.com)
The only person holding back the Eurozone from flooding the banks in need of cash was Germany's Mrs. Merkel. A smart woman who insisted her country would not support efforts to inflate by printing money to support financially troubled banks in Spain, Ireland, Greece, Portugal and Italy. I guess the pressure became too overwhelming as she did cave in and finally supported those efforts to inflate the banks. She'll be grilled hard as her country will now also pay the price down the road, but the bottom line is she did cave in and the market ate it up on Friday!
The markets throughout the Eurozone blasted higher, and thus so did ours. The indexes jumped 1 1/2-2% shortly after the opening and gradually rose for the rest of the day, netting big gains when all was said and done. Most importantly, all the key index daily charts cleared their 50-day exponential moving averages. That's bullish no matter how you slice it. The bears have no argument. There's no playing spin doctor here. The bulls made the move as the fear of the Fed overwhelmed the bears who covered their shorts.
Fear of the Fed and of world bank action has long been the nemesis of the bears, where even the threat of action often causes them to give up their bearish positions. It's not a fair or level playing field, but it's the house rules that everyone must live by. The bears know the risk, so there's really no one to blame. You know the cards are stacked against you, so if you play you have to accept it when these events go against you. The bulls hit a home run on Friday. It doesn't mean game over, but the bulls now have a rally going with their power hitter always waiting on deck.
Thursday gave us a hint of what was to come, as the market curiously rallied hard late in the day when there really wasn't any significant news. Sure, some nonsense about Mrs. Merkel, but nothing concrete. In fact, after hours, the market was down quite a bit, with the S&P 500 down a five handle and sinking slowly but surely. As the evening wore on, the news hit about Merkel's surrender, and boom went our futures.
It astounds me how the market always seems to know the story before everyone else does, like it did Thursday. Now the market is telling us that things are likely headed higher after some backing and filling to unwind short-term overbought conditions. However, while the blow through the 50's were powerful, volume was light and not confirming. There was more short covering than actual buyers. You can't argue with price, but it would have been best if the whole world joined in the party. Technically, you always want confirmation, and thus it leaves the door open to a head fake.
That said, the action was strong because we blew through all the 50-day exponential moving averages. Those levels being 1337 on the S&P 500 and 2889 on the Nasdaq 100. The moves also occurred on gap ups. Many bottom-feeding stocks finally got rolling, such as Abercrombie & Fitch Co. (ANF) and Caterpillar Inc. (CAT), to name a couple. The best percentage moves occurred mostly from these types of stocks, but make no mistake about it, this rally was across the board. Every sector took advantage.
That is a bullish sign as well, as the rally wasn't narrow in nature. Again, only volume was missing. Maybe that will come in sometime this next week. As long as those 50-day exponential moving averages hold, the market is in decent shape technically. If we lose them again, it's yet another red flag. 1425 is roughly the top of the wedge -- thus, it's not out of the question that we can make our way up there over the next few weeks. No guarantee, but with Friday's advance through the 50's, it opens the door to that possibility, which seemed like an impossibility not too long ago. It looked more like doom was upon us, but the world was saved Thursday night for yet another few weeks, or who knows how long. Use some weakness to unwind those short-term 60-minute charts to do some buying. Keep it simple. Opportunity will present itself shortly.