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These are dangerous times

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by Peter Switzer

Stocks went higher on Wall Street and the reasons for the rise were central bank-related, but we’re still entering dangerous waters. And we won’t be free of them until September 6, so get used to the anxiety.

The Dow was up 100.51 points or 0.77 per cent to 13,157.97 while the S&P 500 put on 9.05 points or 0.65 per cent to finish at 1411.13.

Given the Dow was off 0.88 per cent for the week, which is nothing compared to its rise since June 4, which was around 9.7 per cent, it should not be of major concern. However, profit-taking is still on the cards for professional players and fund managers who are not prepared to punt on the European Central Bank (ECB) and European Union leaders generally.

Dangerous charts

My charts guy, Lance Lai, says the charts are looking “dangerous” and so we need a genuine positive shock to the system out of Europe to turn the dangerous into something positive on the charts.

On Friday, Wall Street liked the Federal Reserve boss Ben Bernanke hinting that QE3 is still a very real option given the state of the economy and the ECB is reportedly thinking about a new bond buying program where yield band targets are set to prevent the likes of Spain and Italy being forced to endure ruinous borrowing rates of interest.

Still, US investors are getting nervous with the VIX or fear index up to 15.23 after plumbing below 14 a couple of weeks ago.

Two events

The two big events over the next two weeks are the at the Jackson Hole symposium. Bernanke speaks on Friday and I have just learnt that the ECB boss, Mario Draghi, is expected to speak as well. Markets will watch this like a Labrador eyeballing a sausage on a barbecue!

Then next week, Draghi will have centre stage and what transpires will make or break stock markets, business, investor and consumer confidence, as well as determining the course of the global economy.

It’s a big deal and that’s why Lance’s charts will be sounding out the warning, one false move by these central bankers and fear and loathing returns!

For today, I expect markets to want to go higher but these dangerous chart signals could put a bit of resistance into the mix.

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: Monday, August 27, 2012

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