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I like the positivity

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by Peter Switzer

Like last week, this week has crucial events that could make or break this great stock market rally. The European Central Bank (ECB) did the right thing last Thursday and now we have a German court decision happening tomorrow followed by the Federal Reserve’s QE3 decision the day after.

If the German court says German money going into the bailout fund is constitutionally permissible and Ben Bernanke then impresses stock markets with what he says or does in relation to QE3, then stocks can go higher.

And I have to admit that I do like the positivity I’m seeing on markets right now. It’s not over-the-top but it is convincing me that negativity is being cautiously let go by some investors who have been out of stocks. Furthermore, if my most optimistic but very possible scenario develops, then we could see a big leg up for stocks probably in early 2013, though it could come earlier.

On Wall Street

Overnight Wall Street kept the positive vibe happening with the Dow putting on 69.07 points or 0.52 per cent to end at 13,323.36.

The index has not been at these levels since late December 2007. Remember the Crash of 2007-2009 started around 1 November 2007 and so the Yanks are close to erasing the bad memories of the past four and three-quarter years!

The high, for the record was, 13,930.1 on October 31 and on November 1 the index gave up 362.23 points!

Helping the index overnight was the market belief that the German court will say “yah” and AMP’s economist Shane Oliver agreed on my Switzer program on the Sky News Business channel last night.

The market also expects something that will look like QE3 from the Fed and Oliver also agrees with that as well. Energy stock prices are rising and this can be a forward indicator that economic activity is starting to improve.

Also China’s leadership says their 7.5 per cent growth target is in train, which challenges those who say a worse than expected slowdown is on the way for our best export customer.

The yes man

So what is my best case, positive scenario? It goes like this: the German court says yes, Bernanke says yes to QE3, the US election happens and the Congress says yes to deficit-reduction plans by the end of the year. We will say “yes!” when better than expected growth numbers come in for China and that’s when investors who have been saying no to stocks will start saying yes.

Yep, I am a ‘yes man’ but it will take a number of challenges to be beaten before my ‘yes-case scenario’ can be pulled off! But if it does happen, stocks will go ballistic.

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.

Watch more from Peter on SWITZER TV.

Published on: Wednesday, September 12, 2012

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