(Marco Bonelli) Probably the most valid observation in these days, which are dictated by the almost routine early-morning and late-afternoon rumors, is that the market obviously wants to go higher and the upside is the direction of least resistance.
Although shallow statements like "...the ECB will do what is needed..." and "...the Euro is in no way at risk..." raise more suspicion than real hope and ECB chief Mario Draghi just took some steam out of the QE discussion, hopes continue to ride high for today's European summit.
It will be interesting to see if the almost cheerful interpretation of any statement, headline and rumors coming out of Europe that prevails since the announcement of global central banks from November 28th, will continue.
Having said that, Mario Draghi's comment "We have a treaty which bans monetary financing...." and "...the ECB's primary remit is price stability..." completely destroys hopes that any form of broad-based quantitative easing could be part of any solution to the European crisis (if it ever solved anything anyway). So you wonder if the whole rally in the last eight trading days was solely based on make-believe liquidity arguments (ECB, Fed, IMF and other institutions) which won't materialize in the expected near-term future.
Anyway, so far the market obviously wanted to go higher and the upside was the direction of least resistance. The Dow Jones is back up to its October highs, the SPX sits between the critical 1250-1258 level, right below its 200day MA, the Nasdaq Composite consolidates above the critical 2600 level but below its 200day MA and the NDX, the only one of the major index that trades close to its highs from May and July, consolidates above its 200day MA but is shy of the highs from end of October. To note is that the Nasdaq as well as small and mid-caps were underperforming this week. Bottom-line, trading mostly above the September highs and with that, the old trading range from August/ September and looking at how easy the market brushes off any kind of negative news, it is indeed possible that the market moves higher and the Santa Clause rally comes true. This will particularly be helped by any kind of statement from the European Summit that goes beyond any of the recent unrealistic proposals from the past days. If the outcome of the summit is a disappointment, which wouldn't be surprising as well, it remains to be seen, if buyers pile up in any weakness.
The fact that the global events are unprecedented and the study of history doesn't suggest any real predictions, which results in the fact that the market trades in patterns that can only be compared to any historic developments in a limited way, ignoring traditional seasonal historic patterns, makes it difficult to come up with any predictions.
So far holding some trading positions on the long-side and/ or buying any weakness in an attempt to play the year-end rally and help investors to make up some performance in the last trading weeks of the year is the game to play. The question remains for how long and being careful might still be a wise strategy.
Trade well.
(Marco Bonelli is the Managing Director of International for CL King & Associates in New York. The opinions expressed are his own)
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