Peter's Daily Word

A Rodney Dangerfield rally

| More

by Peter Switzer

The rally rolls on on Wall Street, so you can expect this to be good for stocks locally but question marks over this share price spike are being raised because it rests on expected central bank action from the Federal Reserve in the USA, and more importantly, by the European Central Bank (ECB) in Europe.

One lark on CNBC called it a Roger Dangerfield rally because it “gets no respect!”

But against this, the rise has taken out some important resistance levels which makes me think we keep going higher for a while until some exogenous or left-field shock KO’s share buyers’ enthusiasm.

Markets trend up

My charts guy on my Switzer program on the Sky News Business Channel, Lance Lai from Accountancy Invest, who has been on the money often, says he’s still comfortable with the rise he predicted on TV and in my Switzer Super Report for self-managed super funds.

Over the last week the Shanghai Composite has trended up nicely and two weeks ago this was the only worry sign Lai was concerned about. All of his other charts were screaming that markets had to trend up.

What Wall Street expects

In a nutshell, Wall Street expects the Fed to offer QE3 soon and they expect the ECB at its September meeting to outline what it will do to keep government bond yields down for the likes of Spain and Italy. Already, short-term bond yield have fallen nicely because of the ECB boss, Mario Draghi’s “whatever it takes” comments and a follow up press conference, which was initially poorly received.

Anyway, after a closer look at what was said, this rally kicked off and it was helped by 163,000 jobs in the US employment report for July. Also, US company reporting has been better than expected.

The Dow ended up 51.09 points or 0.39 per cent to 13,168.6 while the S&P 500 put on 7.12 points or 0.51 per cent to 1401.35.

The Dow is closing in on a four and half year high after an eight per cent rise in 2012 and really putting it to the doomsday merchants while the S&P 500 is up around 13 per cent for the year.

Tricky days

I wouldn’t be surprised to see a pullback as a strong rally always brings out profit-takers but provided the ECB doesn’t disappoint the market, I think this could be the makings of the day when the bears go into hibernation, making it great for the bulls to run. That said, anything can go wrong as the last few years have proved, so be positive but tread warily if you’re not someone who can weather a short-term loss.

These are still tricky days and this rally isn’t getting enough respect just yet.

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.