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Rally on better Euro-debt

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by Peter Switzer

Wall Street gave into the positive vibe with stocks rallying on better European debt news and then the technicals took over. But the big question is, can it last?

The news I like to read early in the morning is that the euro went up against the US dollar. When the euro goes up and the price of oil goes up, it tells me the global recovery has more potential to resist a double dip into recession.

Europe is also the biggest customer for China and as this country is our most important trading partner, it all augurs well for our economic growth. However, to see our stock market go up we need Wall Street positive. I cannot see us decoupling from this market-dependence for some time yet.

Debt demand

The great news this morning out of Europe was solid demand for government debt for a number of European countries.

By the way, this isn’t just a sentiment thing for Wall Street but more a case of analysts looking at US companies exposed to a Europe that could double dip because of the debt issues and the austerity programs that lie ahead. That means big industrial and tech companies with significant exposure to Europe can make or break the market on a daily basis.

Not surprisingly oil beat US$76 a barrel overnight.

Improving economy

One way out and nearly wacky call on one industry that gives an optimist like me hope is the fact that US airline carriers now expect better revenues, higher fares and greater passenger numbers. That’s a great anecdotal indicator of an improving US economy.

Helping the US market today was the S&P 500 which cut through its 200-day moving average of 1108 and that gave the rally some more grunt.

You can worry about Europe, China and anything else but technical levels can have a big impact because a lot of traders are guided by these key technical support levels.

The S&P 500 has been hovering between 1040 on the bottom and 1108 on the topside — an important gauge for whether the market can stay out of the recently breached correction territory and resume. If this break can be sustained, this market could go higher provided there is no scary news to spook the market.

Spiritual guidance

For those who pray, I asked for China to be added to prayers in 2008 after Lehman Brothers collapsed and a Great Depression was possible. I then added European leaders to the list — these guys and gals needed spiritual guidance for their leadership.

And now I would say a little prayer for technical levels. Go in peace and sin no more, that is, be a negative doubter.

For advice you can trust, contact Switzer Financial Services.

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, June 16, 2010