Yesterday the markets begun the week with a lot weakness with the S&P 500 futures openining 15 points down and with the market falling about 2% before rallying in the afternoon and recovering most of the losses.

 

Today we see a continuation of the rally that started yesterday in the afternoon making the S&P 500 hit the previous highs at 1220 from the end of August. Also at these level the 50 day moving average is trading so I expect some resistance at these levels, especially with the FOMC meeting tomorrow.

 

 

Traders are expecting a new round of monetary stimulus tomorrow.  The way that it will be implemented will probably be different than QE1 & QE2 but some action from the FED is expected after weaker than expected economic growth and Bernanke declaring that "inflation is not ingrained" in the economy.

 

A new round of QE would probably generate a large rally in stocks as liquidity poors into the markets and the dollar weakens.  This would encourage investors, ttraders and speculators to buy stocks despite weak economic growth.

 

The rally in stocks could be even stronger if the Obama passes the "jobs plan" which is basically more fiscal stimulus that would make the economy grow more in the short term and avoid entering in recession once again.

 

 

 

During the last couple of days I have seen a larger amount of stocks showing leadership and bullish setups which make the market configuration much more bullish.

 

Today, for example, Apple is hitting new historic highs.

 

Even if the FED doesn´t "print" again in the short term and the market sell off, it is very likely that quality stocks that are setting up will show strength in the pull back and will offer excellent high probability entries.  

 

If the FED decides to "print" it is probable that the market will continue moving higher and we will take some positions on stocks showing the greatest strength.

 

Best regards,

                      Victor Riesco