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200 points on the Dow

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by Peter Switzer

Well, the charts say this market has gone too far up and a sell-off is overdue but the run of good news keeps coming and it means the buyers are outnumbering the sellers.

Stocks closed sharply higher Tuesday, pushing the major averages to multi-year highs, on news of a stronger US economy and a recovering banking sector.

Euphoria reigned today and it meant the Dow beat 13,000 and the Nasdaq took out the 3000-level and that hasn’t happened together before.

Of course, the Nasdaq has been higher during the dotcom boom and so this could be another testing time for the index.

For the record, the Dow was up 217.97 points, or 1.68 per cent, to 13,177.68, while the S&P 500 index was up 1.81 per cent to 1395.95.

New from the US

Underpinning this so-called ‘risk-on’ trade when investors take on shares that are more risky than bonds is more comfort about Europe. Eurozone finance ministers gave the final thumbs up to the Greek bailout package and the Federal Reserve in the USA talked about a better economic outlook.

Then along came retails sales in the States, which were the best read in five months. The February number was up 1.1 per cent and this followed a 0.6 per cent jump in January.

Completing the picture, JPMorgan announced a buyback and a higher dividend and we heard that the big US banks have passed the Fed’s test.

That kind of thing will always help bank stocks and the index. By the way, this should help our index as well as better banks worldwide reduces systemic banking issues that have been adding to the cost of funding.

Positive shareholders

Underlining how positive shareholders are, the VIX or fear index has fallen to 14.8 and that’s really low, as it was higher than 40 in August of last year when stocks plummeted.

This improving US picture and a Europe that still has problems but is at least heading in the right direction could help local stocks especially with China’s slowing growth helping to bring the Aussie dollar down to 105 US cents.

I reckon if we can head towards parity or even lower then a lot of companies’ share prices would go north. However, we will need to see the RBA relent on rates to help that dollar scenario come to reality.

Still, the Dow up over 200 points is a nice way to start the trading day!

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Wednesday, March 14, 2012

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